Why am I getting lucky?
So basically I'm a HS senior and I created a fake trading account last year. I do a very very very very minimal analysis of the stocks I pick, or sometimes pick stock that I feel will trend up or down the next day. So far in my first 12 months of doing this I have returned a positive amount of money every month this year. I know that this return cannot be due to a skill or in depth analysis so I'm looking for some possible reasons for this streak of luck.
There is no why for luck.
a rising tide lifts all boats -- nasdaq returned over 15% in past 12 months and DJIA and S&P have returned over 10%...
paul the octopus probably would have made more than you if he didn't die
The stock market is up 11% since last year - you'd have to be a complete retard or very unlucky to not get a positive return every year. A monkey is expected to get positive returns by just picking stocks whose letter symbols represent bananas. You're not even getting lucky, you're just getting not super unlucky.
If you got a 100% return in 12 months, that would be lucky (but not extraordinarily so - you might have just invested in Amazon or Apple).
I've returned 83% this year from looking into random companies and day trading
If you're trading, it's a matter of timing. Anyone can read a headline, think it's going to positively effect a company, only to see that the information is already priced in without any additional effect on the stock price. To return the market, you'd have to be holding stocks for a period of time. I think when you're trading, your returns are less correlated to the long run market return, thus the idea that he should've returned at least market is a bad assumption.
Yeah when you get 20+% return for 10 years straight, come back to talk to us about getting "lucky."
In the short-run, luck matters a lot more than in the long-run. You've only been trading stocks for a year. This means that luck is probably playing a huge role in your outcomes. It's like having a hot-streak at the blackjack table. It might last for an hour, but if you extend the time horizon and stay the whole night the math will work out in the house's favor and your luck will leave you dry. So, if you do well for 5+ years, then you can more plausibly argue that it is due to some talent you have.
Also, fake money does not equal real money in investing. The psychology of the two are totally different. You have almost no aversion to losing fake money, and obviously this would not be the case for real money. And as Nobel Prize in Economics winner Danny Kahneman so eloquently proved, people care more about losses than gains. So the main psychological dynamic behind investing is removed with virtual money. I traded virtual money for six years before trading real money and was astonished at how different it "felt"
Further reading: read Taleb (his non-technical stuff). He explains this phenomenon a lot better than any of us will.
Rant over.
Optio et laboriosam velit corporis. Pariatur autem et iusto iure et sint veniam incidunt.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...