This month, we learn about the real odds of success on prediction markets, the hard truth that buying stocks is rarely a comfortable decision, and why hedge funds often appeal to status more than performance.
#1 – “Why Almost Everyone Loses – Except a Few Sharks – on Prediction Markets” (WSJ article)
“On Polymarket, the Journal found, 67% of profits go to just 0.1% of accounts. That means less than 2,000 accounts netted a total of nearly half a billion dollars.” – WSJ (emphasis added)
These stats are daunting enough to make anyone think twice before placing a bet (or “trade”) on a prediction market. It brings to mind Warren Buffett’s classic quote: “If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.”
#2 – “How I Learned to Stop Worrying and Love the Market” by Elm Wealth
“Over the past 75 years, the US stock market was within 5% of its all-time high about 60% of the time… and then another 25% of the time the market was in or near a bear market… as signaled by the market trading below its one-year moving average. That leaves only 15% of the time for periods when it would have felt comfortable, using these criteria, to invest in stocks.” – Victor Haghani & James White (emphasis added)
I appreciate this framework because it helps dismantle a common illusion: that a no-brainer opportunity to buy stocks with no uncertainty is right around the corner. Usually, waiting for an “easy” time to buy stocks is an expensive mistake because markets tend to go up over time.
#3 – “When Genius Failed” by Roger Lowenstein
“For people of means, for people who summered in the Hamptons and decorated their homes with Warhols, for patrons of the arts and charity dinners, investing in a hedge fund denoted a certain status, an inclusion among Wall Street’s smartest and savviest. When the world was talking investments, what could be more thrilling than to demurely drop, at courtside, the name of a young, sophisticated hedge fund manager who, discreetly, shrewdly, and auspiciously, was handling one’s resources? Hedge funds became a symbol of the richest and the best. Paradoxically, the princely fees that hedge fund managers charged enhanced their allure, for who could get away with such gaudy fees except the exceptionally talented?” – Roger Lowenstein (emphasis added)
The undeniable allure of status and exclusivity that comes with hedge funds (and other complex alternative investments) is hard to resist. But while status has its appeal, we prefer low-cost index funds which have historically provided superior long-term performance without the heavy drag of excessive fees and tax inefficiency.
(Bonus note: Victor Haghani, who is featured prominently in this book, was a recent guest on our podcast.)
My goal for these blog posts is to provide useful information so that you can make more accurate decisions.
- Noise includes facts/data/news that cannot be processed into useful information (<— WHAT MOST STUFF IS)
- Useful information can be used to make more accurate decisions (<— WHAT I’M TRYING TO PROVIDE)
Since there is an endless and ever-growing amount of things to learn, I hope that these posts are helpful in summarizing important topics related to investing.
