Cosmic problem!Why do professional players fry stocks but novice?

2022-06-20 0 By

It is a cliche and misleading that the returns of professional investors often seem to be the same as, or worse than, novice investors.The phenomenon itself does not matter, but the dangerous consequences it may lead to are worth vigilance.Newcomers to the market often misjudge their abilities, underestimate the market and ignore risks, and ultimately pay a heavy price.1. How are representations produced?Just to give you two random examples of how this representation is generated.Example 1: It’s no secret that Buffett’s career average annualized return is a little over 20%. In good times, a stock newbie could have made a lot more than that without doing much research.Example 2: “God of Wine” Zhang Kun’s two trump funds, Yi Fangda Blue Chip Selection and Yi Fangda Small and medium cap, were hot in 2019 and 2020 with a 2-year triple return.But since 2021, the losses of the two funds have been around 15%. Obviously, just looking at the results after 21 years, any novice may do better than Zhang Kun.The above phenomenon is indeed common, most beginners do not have an accurate understanding of their own ability, so they have more or less “professional players, even Buffett” idea.What is a professional player?The old leek who suffer the market beating will of course feel the above idea is very ridiculous, but “professional players fry but novice” phenomenon and indeed often exist, and when we explain?To avoid confusion, the “pro player” here is not based on whether someone is a public and private equity fund manager or not, but more on whether someone has a logical and relatively stable profit system that has been proven throughout the full bull and bear cycle.The main reason for this is that there is a significant difference between investing and other professions, where advancement is usually based on or accompanied by the growth of a team.As long as an investor has stable profitability, he or she will choose to invest on his or her own instead of establishing or joining a team.On the contrary, the growth of many fund managers is patterned, and pay more attention to the training and elite school background, rather than hanging the title of “fund manager” must be a professional player.With a consensus definition for pros, I’ll try to explain why pros can’t beat novices in stocks.Everything in the world works with certainty and randomness, although in extreme cases it can be completely deterministic or completely random.If you’re in free fall and you do it 100 times under the same conditions, you’re going to get the same result. That’s perfect certainty.The Brownian motion of tiny particles observed under a microscope, for example, is generally considered to be completely random.But except in extreme cases, most things are a combination of certainty and randomness, and so is investing, and complex market systems bring much more randomness than certainty to investments that are more of a humanities than a natural science.High randomness means that the rules derived from historical data may be meaningless, and the value of analyzing various pricing factors may be limited.The pros spend a lifetime studying, and the cap is just capturing the certainty part of the investment, not the randomness part.As a result, the performance of the professional players in this field can seem mediocre or even miserable at times, while the investment returns of the novice players in this field can sometimes be sky high.The pros don’t lose by certainty, they lose by randomness, and the novices beat the pros just by randomness (commonly known as “luck”).I’m a football fan. Let’s take football as an example.Two teams before the game, the pundits like to predict the result of the match, but tend to predict, but are not necessarily expert level not, more detailed, but experts research team can only stop the deterministic part of the paper strength, and played for the players, coaches and referees and part such as randomness and can only be blind luck.In a game, an effective strategy for weak teams is also to reduce the certainty factor of team disparity by various methods (disruptive defense, disruption of the pace of play, time-wasting, etc.) and increase the proportion of randomness in determining the outcome of the game.At the extreme end of the scale is a knockout game, where the weaker team has succeeded in minimising the certainty factor if it can get a penalty kick, allowing it to beat the stronger team at random.Randomness seems to me to be a bigger part of investing than football, so it’s no surprise that pros can’t beat novices.Back to the beginning of this article, why do we say that this is misleading and dangerous when there is a reasonable explanation for why “professional players do not buy stocks but novice players do?”When people are successful, they tend to exaggerate the certainty (power) and underestimate the randomness (luck), so that luck is often regarded as power.Luck is conserved, and as long as the time is long enough and the base is large enough, luck will be fair to everyone (of course, the greater the randomness, the larger the sample required). We cannot invest on the assumption that we are the “chosen one”.In soccer, for example, in a determined knockout match, the weak team is likely to beat the strong team randomly, but in best-of-five or best-of-seven games or in a league game, the randomness is reduced and the final result is more determined by the certainty of team strength.It is true that many novices can beat professional players in the short term due to the randomness, but in the long run, the randomness will be gradually worn off, and the return will be more determined by the certainty. In other words, investment ability is indeed the most important factor determining investment return in the long run.We should know our own ability boundaries, do things with high probability, never misjudge our ability because of random results.Thank you for reading this article, if this article is helpful to you, please like, share, follow, thank you very much!