The advice I give to people on here is generally upvoted, except when it comes to investing. If you're in the top 1% or 0.1% intellectually and you're active in the tech community as a software developer or other highly technical skill you are very well situated to beat the market.
Pick any decade where this wasn't true. In the 90s it was buying web domains or investing in personal computer companies. In the 2000s it was investing in platforms and social networks or even just building a company in the mobile space. In the 10s it was cryptocurrencies and AI.
All of these things were obvious and even if you didn't get in at the very ground floor (buying sex.com or 50 bitcoins for a dollar) you still make hyper, hyper gains.
100000% returns? Totally possible. Now go on and take all that knowledge you hard fought for at MIT, Stanford, Harvard, or Waterloo (or even on your own!) and use it too... Invest in low fee ETFs.
Don't take it to heart -- people are intimidated by finance. Engineers like a scope-defined problem set and finance doesn't work with them.
IMO, do the boglehead thing for 80-90% and play with 10-20%. If you spend some time on it and educate yourself, that play portfolio will often beat the Vanguard strategy. If you lose, you're not dead.
> Now go on and take all that knowledge you hard fought for at MIT, Stanford, Harvard, or Waterloo (or even on your own!) and use it too... Invest in low fee ETFs.
I disagree with your mocking of this. Your emergency fund or retirement savings are not buckets where you throw every last dollar you have. They only cover your emergency fund (typically 3 - 6 months of expenses) and your retirement (10% - 20% of your annual income per year).
For people working a full-time tech job before starting their own venture, I think eschewing those to "invest in yourself" is probably a stupid idea. Not having an emergency fund is a stupid thing to do if you have the financial situation to fund it.
It's a little different for college dropout or straight-out-of-college entrepreneurship. But in that case, pushing off retirement savings until you have a stable job is reasonable, and try your hardest to build up your emergency fund.
Cover your bases. If you're in a high-risk high-reward lifestyle (like tech entrepreneurship), investing 10% - 20% of your income in standard low-fee ETF's is a GREAT point of diversification.
Look I don't think you are wrong in the sense that your advice would be bad for the people taking it, I just think you are wrong in terms of the actual numbers you suggest.
15% of your money in something technically promising but risky isn't really worth the time you'd have to put into the research for it. Put in 50% at the very least. You'll make money if you are right and if you're bad at investing it will be safe enough for you to survive retirement.
Sorry, maybe I'm just tired, but I'm confused by your post.
> 15% of your money in something technically promising but risky isn't really worth the time you'd have to put into the research for it. Put in 50% at the very least. You'll make money if you are right and if you're bad at investing it will be safe enough for you to survive retirement.
Are you talking about investing in one's own venture (where you're looking for high return), or investing for retirement (in a diversified portfolio w/ low-fee ETF's, where an 8%-per-year return is great)?
I've been commenting on here for almost 10 years. I've been wrong sometimes, but I've called a lot right (from Tesla, Apple, Facebook, Bitcoin, AI).
Next decade is going to be cyber security and a word that I doesn't exist yet that I think of as "personification" of the internet. Combination of webs of trust and machine learning to both shape tastes and politics and harden networks from their shaping. Also, I think there is a pretty good chance that biology takes off, starting with GATACA or something like it for dogs. People want old scratch to live forever and not get hip dysplasia, and once old doggo is doing fine with Gene Drive then we're not going to be far off. Also, people are much more comfortable thinking with graphs of data. Think about tying together graphs that we can use to make predictions and watch companies like meta.com (bought by Zuck, that guy is a genius) and researchgate.net.
Also get ready for mass protests and "eat the rich" politics. Especially in America where the poor are poorly educated and the political system is corrupt enough to be evil enough to not support the poor, but not corrupt enough to collapse the private sector.
--> Combination of webs of trust and machine learning to both shape tastes and politics and harden networks from their shaping.
Can you elaborate on this with an example of a future scenario? Thinking about this is throwing me for a loop. Are you talking about some deeper level of web curation not yet achieved? People ever more entrenched in their own AI curated "bubbles"? "Harden networks from their shaping" Qwut?
Imagine social networks where you couldn't just make 100 bots. Through some low friction mechanism the people that you trusted most would be identified to you as such and by extension the people they most trusted would be visually indicated to you. Settings would allow you to completely filter out people that aren't within a certain degree of trust.
Right now adversaries attempt to warp what people believe by pushing them to make connections to more extreme elements, this would be less possible if the social network were built in such a way that would expose fake or low trust profiles.
The web of trust would resemble Page Rank, more than modern day Facebook. For example, Bill Kristol may be trusted by people like Ezra Klein to such a high degree as to not just bring him within your bubble, but to be part of a social network feed that would provide a blend of opinions.
I'm not saying this is easy to get right, but it's necessary if we want to have open platforms like Twitter to survive gamification by nation-states and brand marketers.
I think cyber security is going to be huge too, but not sure how to make a play on it, don't see any obvious winners in the security space. What approach do you take?
If you're not in the position to angel invest I don't have anything top of mind to share. I think most of the stock market is overpriced, but Facebook is still probably a reasonable bet.
If I knew the next Bitcoin I'd definitely have typed it out. Sometimes the answer is to just wait and see and let your thoughts kinda work through things. What I know for sure is that there are a lot of powerful people that found out how important cyber security is in the past couple years. Snowden, Clinton, Paradise Papers. The market will do its best to try to meet this need.
From a work perspective, I recall reading that in the next 10 years, 6 of 10 people on a development team will be security related. [Looked for the source, can't find it, due your own diligence]. 1.8 Million security jobs vacant by 2022. https://venturebeat.com/2017/06/07/global-cybersecurity-work...
The need for very seasoned professionals who have BOTH security and heavy development/business/architecture backgrounds will be a scarce thing.
Look at sectors that benefit from the political environment.
Things like pharmaceuticals with ok pipelines, good companies in shitty sectors (say a company like Costco in retail), health insurers and companies like McDonald's that do well when the rest of the world does not. Think about smaller players who benefit from net neutrality going away.
You should have a running list of good companies and invest as you see corrections or downturns.
This is not at all like what the parent post implied. You're basically saying to pick sectors/companies that will net a slightly better than market rate of return on average. Which is great. However, this is very far from a 10000x return on true outliers, long shots, and market bubbles.
Knowing your shit and having liquid cash is key to those opportunities. My play portfolio made a 10x return after the financial crisis because of knowing key sectors and having cash.
Likewise, I had a nice bitcoin hit that could have been a 1000x play, but to be honest I got out to buy a car, which in retrospect was a very dumb decision!
By the time I had Sun stock, I would have had to pay someone to take it. Still loved working there.
I cashed out a bunch of bitcoin for what I thought was going to be a near peak price at the time, $800. Fortunately, I never agree with myself completely, so I saved a few for the long run. Thinking back, I can't really say I would do anything differently with the information I had at the time.
This isn't investment advice. I think the idea is that you'll have some investments that yield 1000x and some that yield 0x so you'll average out to something that's better than the market, but not 1000x.
I agree. However, the original question was more like, "if it's easy to see what will yield a huge return, what should I invest in today to get that return?" To me, it's pretty clear that investments yielding huge returns are only obvious in hindsight, and even an astute tech-savvy investor will, on average, only do slightly better than a normal diversified portfolio.
Those two statements don’t jive. It’s not impossible to trade hours for a return significantly better than a normal diversified portfolio, but less than being an early bitcoin miner.
It's important to realize the global macro environment is pushing up prices of everything: houses, stocks, just, all of it.
I'll admit I'm surprised by Bitcoin, I actively avoided it thinking it would crash long before now. But I wouldn't treat the past five years as anything remotely "normal". We're in one of the longest bull markets the US has ever seen and there are a lot of macro forces that will eventually end it, e.g. boomer retirement, student loan debt overhang, pension obligations. I was just reading some of Dalio's daily observations on some of this, they're quite good.
No, but it is unlikely. Hence the "average" part. Also, if we're talking about trading hours we're effectively talking about working rather than investing. Of course you can make more than a market return if you spend your free time consulting on the side, for example, but that's not really comparable to spending 5 minutes buying bitcoin or Tesla stock in 2011.
Your instincts about pharma may be badly wrong. Many hackers are shocked that pharma stocks generally go up when they downsize in research -- it seems wrong to our builder instinct but it makes sense in terms of short-term opportunity.
I'm a smart guy with a good degree. I still wouldn't represent myself in a court, or diagnose my own medical ailments, or file my own accounts. Why would I think I could pick stocks better than a professional?
Because if you can pick an index fund with low fees, you are already beating most professional stock pickers. Yes, you may find the one or a few active investors who are amazing, but unlike law or medicine, there is a fallback option that is consistently successful in both short and long term compared to most stock picking, even professional. Note that you may all lose if the market goes against you, even active stock folks with lots of "hedges against the downside" and whatnot.
I don't think index funds are what the parent meant by "picking stocks". Going with a fund, even an index fund, is still a form of delegating the low-level work to financial professionals.
Because professional is a somewhat nebulous term when it comes to finance.
I do think that there are some firms, who cater to mostly very wealthy clients, who can consistently beat the market, or at least have a good chance of finding some niche or anomaly every few years for a huge jackpot such that their overall average is higher than the indexes.
The problem is that most of us won't have access to these people.
Instead, our professional is going to be the typical financial planner who has far less of an understanding of math than even the typical CS / engineer grad, and is basically a commissioned sales person who will take 5% off the top, plus another 2% a year - all for basically investing it in the same index funds you can now buy yourself with a Schwab or Vanguard account.
Find a financial planner that charges a flat fee, not a commission. He's not going to be selling you some stupid investment vehicle because he's not getting paid to sell that, he's getting paid to help you. He also is going to devote equal time to you, whether you have just a bit of money or a lot, you are equally entitled to his time as his wealthier customers. The only downside is that his financial incentive is to gain more customers. So he probably isn't going to sell you expensive bonds but he might not be able to devote as much time to your specific needs.
What will stop him from doing both charging you a flat fee and recommending less than optimal products to get an undertable commission. He can take you for a ride before you realize the game.
I think this can work only if we as customer also learn to cross examine his reasoning and ask hard pointed questions.
Ensure that one of the first questions asked is whether or not he has a fiduciary duty to you. If he says yes, then ensure that this is part of your written agreement of services.
Once an advisor is acting as your fiduciary, it's not lawful for them to advise you to do anything but what is in your best interest. Further, they may not have any conflicts of interest. This was supposed to be the case for all US retirement accounts, but the Financial Services Industry fought tooth and nail to defeat the Obama era rule.
How will you prove they deceived you? Moreover they might not be as competent as they sound. By the time you realize the deception, you might have gone bankrupt. Only by learning the basics we can hope to protect ourselves against bad advise.
The fiduciary duty of care solves the problem of advisors having mixed or divided loyalties and motives for clients wondering about why this or that product is being recommended. The simple answer is that the advisor is legally required to act on your behalf — period. If they do not, there's full recourse in the courts.
Competence is a qualitatively different problem and has different solutions. Usually, one would look for past experience, performance, and educational credentials to gauge competence in those they hire.
I do agree that the more educated client, the better. But, personally, I can only have domain expertise in so many areas, and I only have so much time. Outsourcing is a logical strategy.
This comment astounds me. I'm an engineer as well, and while I get the logic that you're presenting here, I can't help but squirm at the thought of someone else managing my money.
In fact, it's something I just do not understand at all. The idea of giving my money to a complete stranger and entrusting them with years of my hard work is nuts to me. If people just read a bit about finance and managed their own money (in ETFs, your pick of Mutual Funds, REITs, Bonds etc) it would avoid so many headaches for people.
My wife and I call this the "faith in experts" argument. We named it because we often find ourselves on opposite sides of it. She believes in experts, I'm more skeptical.
The main thing I've realized is that returns to pure capital just aren't that high. For a typically-sized retirement account (few hundred K), you're much better off going hard on your career if you're in a field where that's rewarded (law, finance, tech, med, etc.)
The one saving grace of your idea is that you'll have made all the mistakes by the time you have real money to manage, so you won't make silly dumb beginner mistakes like buying high and selling low. That's my post hoc justification, anyway ;)
The problem is that most finance "professionals" you and I encounter are salesmen. The only thing they care about is their commission on that high fee mutual fund they just sold you.
It all depends on the size of your problem. For some cases, there is no need of a professional advice other than just holding hands... I bet you could represent yourself in a small court claim, diagnose yourself with some OTC medication (or hitting the pub?) and file your tax with turbotax depending on your tax year.
What do you do if a high-risk investment suddenly balloons to become much more than 20% of your total investments? When do you choose to jump off the potential 10000x return and rebalance, if this has ever happened to you? (And the next time you make a 20% bet, is it 20% of the new total, or 20% of your traditional portfolio?)
If it was me, I would sell enough to have received a gain of 2-3x my cost basis even if the rest becomes worthless, and then just leave the rest alone unless there is a compelling reason to sell. If you aren't open to _receiving_ the truly outrageous returns that black swan-type events might cause, there is no sense in making bets for black swans. You do need to be a good sleeper to do this though.
The other criterion I'd use is that if one of my risky bets has returned enough money that I could likely retire from it (i.e. >25x annual expenses), I would sell enough to be capable of doing that. That's such a monumental quality of living change that it's not worth it to keep the same level of risk.
This. That's pretty much exactly what I did, although it was more like 800x because bitcoin. It gave me quite a bit of peace of mind to know that even if I was wrong, I was wrong in a very reasonable way and not completely out of the game.
What I do is I do the percentage split on money I direct towards investments. So I have X dollars to invest in a month, 25% will go to high-risk, 65% medium, 10% low-risk. Any profits coming from a certain risk section will be reinvested into that same section. If some section really balloons out of control I can perform some rebalancing, but in practice I haven't had to worry about that yet.
All of the examples that you cite are speculative in nature and to be a successful speculator you need to know when to exit. For example, personal computer companies were a great bet in the mid 90s but a terrible bet in the 2000s.
So my question to you is how will you know when it's time to sell cryptocurrencies? Is there a particular methodology that you're using?
Well the answer is that I underperform what could have been optimal. That means I sold most of my bitcoins between $200 and $1000 USD. Sure it hurts, but I still have some.
I got out of the stock market in 2006 because I thought it was overpriced too. I'm the type of person that looks at fundamentals / physics and I get in and out early. Bitcoin might be going to $50k a coin, but I bought at $3 USD and I still have a small amount. I still think the governments are going to ban it, but having a bit of exposure is averaging the risk.
I believe your assessment of "government ban" is a good bet. People forget that governments always want to control the money; I believe they'll let bitcoin go for a while to gain national acceptance - and then outlaw it in favor of a self created currency. Then, since having all money be digital and tracked is useful to a govt, they'll introduce a country wide one.
Why do you think it’ll make it as far as governments banning it? I suppose it depends on whether it’s a reaction to laundering or tax losses, with the former meriting attention a lot sooner than the latter.
A relatively high proportion of students at elite schools will be in the top 1% of the IQ distribution (and the same is probably true of HN contributors), but I don't think you have to interpret this literally for GP's post to be clear. Intellect, like driving skill, can be measured along enough axes that more than 1% can be in the top 1%.
Pick any decade where this wasn't true. In the 90s it was buying web domains or investing in personal computer companies. In the 2000s it was investing in platforms and social networks or even just building a company in the mobile space. In the 10s it was cryptocurrencies and AI.
All of these things were obvious and even if you didn't get in at the very ground floor (buying sex.com or 50 bitcoins for a dollar) you still make hyper, hyper gains.
100000% returns? Totally possible. Now go on and take all that knowledge you hard fought for at MIT, Stanford, Harvard, or Waterloo (or even on your own!) and use it too... Invest in low fee ETFs.
Great plan guys.