Happy August! It's funny how the days are becoming slightly shorter - I was checking the sunset times in New York for a date recently, and it showed that sun now sets at about 8~ p.m., as opposed to 8:30p or even 9ish in June! (We got outdoor seating though, so that was perfect!)
Anyways, yesterday I decided to go to the gym, and after doing my usual routine, I decided to do some bicep curls on impulse. I guess you ought to follow your impulses, because out of the blue, I bumped into Siqi, a friend from my days in Raffles. Despite living in the same dorm, we actually only became close after going to the Reach Cambridge program (I think I wrote about it very early in this blog?) and I pretty much lost touch with him after graduating from Singapore: I saw him once while I was in my semester-long study trip in Beijing, and another time when I was trying to transfer to NYU my freshman year of college.
Seeing a good old friend is always a pleasant surprise - the Universe seem to be listening to my complaints of not having high school friends in New York, and voila, defying all odds, our paths crossed again. Ya, the odds were pretty low - he doesn't really use Facebook, and he is actually finishing his Masters at Columbia. He just happened to be interning in a nearby hedge fund for the summer, and he has a relative living in Midtown East, and therefore I caught him gymming there. His internship was ending in two weeks, too, what a close shave!
Yet again another piece of evidence against "coincidences".
The thing that spurred this piece of writing, however, is what he said regarding active stock-picking and investing. In his words, "it [active stock-picking] doesn't beat the market in the long run, for the vast majority of investors."
And it's true, at least according to the plethora of academic research research that has been published in recent years. These researches cite tax and cost inefficiencies in trading individual stocks, biases and anchoring effects, and the human tendency of loss aversion in trading (selling winners and holding onto losers) as some causes to these losses (among many others). Another cause that they cited bit me hard: Trading publicly-listed securities is essentially a zero-sum game - every cent profit a trader gained is another cent lost by another. (actually, factor in trading/brokerage fees and the pictures are even more grim for active market participants).
And yet, why do these money managers, mutual funds, and hedge funds still persist? And if everyone turns into robo-investing and ETFs, surely there's a human that can beat these algorithms, correct? But I guess, as somebody who enjoys trading stocks himself would ask - is it still a worthwhile hobby to pursue, if it nets you less returns than simply putting your dollars in index funds and using the hours scouring through 10-Ks and other financial filings to watch Netflix instead? Sure, analyzing and evaluating businesses may be an intellectual exercise, is it still worth doing if you're not making money, or at least forsaking some opportunity cost?
I don't know the answers to these questions - for now I can conclude a few things: a) I'll pick stocks still, but hold it for the long run, b) I'll probably allocate even more of my excess cash to robos/etfs that track smaller but promising companies, c) If my next job is investing or trading then it'll probably involve some sort of private transaction and/or operational value-add, and d) I'd really love to pick the brains of a few active investors that I know and I respect.
Time to fire off some e-mails, I guess.
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