Is it still realistic to expect capital compounding from public markets investing?

Wanted to throw out these musings on investing to see what people think. Hopefully this will spark a good dialogue and I can get some fresh perspectives, because these ideas just kick around in my head and go nowhere. Thanks in advance.

1. Is there anything to be learned from studying "the markets"? The more you work in the business, the more you realize the truth of those pithy sayings, like "the market is a voting machine" (Graham/Dodd) and Keynes beauty contest i.e. trying to guess what the crowd will guess. Why do the markets move from A to B? Because X number of people want to sell, and fewer than X people want to buy, so the price goes down until all the orders are filled and the selling demand is satisfied. What determines this (temporary) equilibrium level is basically: how many people are willing to buy from the sellers and at what prices? And how do all these buyers decide how much they want to buy and at what price? Well, that depends on any number of things. Some make their decisions based on historical price action, others on valuation, others on cross-correlations with other markets, others on their existing positioning and how much they have to cover. And all these "decisions" (i.e. "I am willing to buy X amount at Y price") are in a constant state of flux. Selling volume of 1000 today can cause the price to go from 10 to 9, but sell the same amount tomorrow and the price might go from 10 to 5 if there are no bids. So much of public markets investing seems to be based on sentiment. But since both the market participants and the circumstances/factors driving their sentiments change over time, does studying the past really give you a handle on future price action?

2. One of the concerns on this forum (and certainly one of mine) is developing a valuable skill set that you will eventually get paid gobs and gobs of money for. What determines the value of your skill set? The supply and demand for it. Take something like computer programming. If one new programmer enters the field, it takes down the value of your skill set a little bit, because there is one extra unit of supply (assuming demand doesn't change). Now, what about an "investing" or "trading" skill set? The entrance of one incremental skillful investor doesn't just take down the value of your skill set through the transmission mechanism of supply and demand. Yes, one more talented investor in the field means one extra place for rich people to put their money, and if demand stays constant, that means your investing skills are worth slightly less than they were before. But on top of that, the entrance of that incremental talented investor knocks down the value of your skill set because it makes it tougher for you to hit your return target. Anecdotally, Paul Tudor Jones (or one of his contemporaries, I forget) said that he works twice as hard today to make one third of the return that he did when he first started. This is probably true for most zero-sum type of careers, such as investing and trading. It's generally accepted wisdom that in the context of a long-term career, you're supposed to be developing and accruing "career capital" as you go along. The question is, how do you find the patience to stick with learning the craft of investing/trading, knowing that the zero-sum nature of the game will almost certainly erode the value of your "career capital" all the while that you're trying to accumulate it?

3. All this leads up to is, how does one reliably compound capital? Is private equity investing the way to go here? Warren Buffett bought stocks, but his philosophy was that of a business owner, most certainly not a public markets speculator. In the public markets, with no operational control, you're buffeted by the whims of the market (see #1 above) and can't point to an X% IRR target like PE funds can. Is operational control and growing a business (or real estate?) the only reliable/lower-volatility way of compounding capital?

Career Advancement Opportunities

March 2024 Hedge Fund

  • Point72 98.9%
  • D.E. Shaw 97.9%
  • Magnetar Capital 96.8%
  • Citadel Investment Group 95.8%
  • AQR Capital Management 94.7%

Overall Employee Satisfaction

March 2024 Hedge Fund

  • Magnetar Capital 98.9%
  • D.E. Shaw 97.8%
  • Blackstone Group 96.8%
  • Two Sigma Investments 95.7%
  • Citadel Investment Group 94.6%

Professional Growth Opportunities

March 2024 Hedge Fund

  • AQR Capital Management 99.0%
  • Point72 97.9%
  • D.E. Shaw 96.9%
  • Citadel Investment Group 95.8%
  • Magnetar Capital 94.8%

Total Avg Compensation

March 2024 Hedge Fund

  • Portfolio Manager (9) $1,648
  • Vice President (23) $474
  • Director/MD (12) $423
  • NA (6) $322
  • 3rd+ Year Associate (24) $287
  • Manager (4) $282
  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (225) $179
  • Intern/Summer Associate (22) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (249) $85
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
BankonBanking's picture
BankonBanking
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
Secyh62's picture
Secyh62
99.0
5
GameTheory's picture
GameTheory
98.9
6
dosk17's picture
dosk17
98.9
7
DrApeman's picture
DrApeman
98.9
8
CompBanker's picture
CompBanker
98.9
9
kanon's picture
kanon
98.9
10
numi's picture
numi
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”