Stock Trading -or- ReconSWS's Bane

[gabe]

Oh man, I bet your CPA loves you. What does your tax situation look like shifting everything around once a month? If you hold a position for over a year you pay long term capital gains rates. So 15%-20% on the gains. Under a year, you are paying short term capital gains, which are identical to your ordinary income tax rates (30%?). So you aren't just trying to beat an index now, now you are trying to beat the tax code too.* So now your gains are getting hit with a 30% tax bill, is your performance good enough to overcome the tax code as well?

A lot to unpack but I just don't think I will...you seem pretty much on the index bandwagon and that's fine. Just seems like you've reduced investing to either super-short term swing trading or even day trading vs. long term indexing. Believe it or not you can just hold securities of a high quality for a long time. I'm pretty Apple and Tesla heavy since I think they will perform over the long term better than the indices. Other positions I swing trade like PLTR and others. Some I know are cyclical so I trade them on a cylical basis (oil, XOM to be specific). It's not about choosing one thing over another but rather enjoying myself in investing. Heck, I have a small account that I treat like a savings account that's through M1 and is only index funds and a couple REITS and it's great but not nearly as fun as being active in trading.

In terms of tax liability you are right but you're also overstating the situation. In the end we all pay taxes if we make money. Obviously using tax shelters like a 401K or HSA (both of which I do) is a great avenue but you can also use real estate (which I do a LOT of) to write off quite a bit of W2 income as losses and greatly reduce tax liability. Sure long-term capital gains are taxed at a lower rate but if I'm making money the gov is making money so whether it's 15% for long term or 22-28% for short term the % in the middle isn't sinking the ship. It might be a major concern if you're swinging around a super large day trading account but for the average Joe throwing a few grand back and forth it's not going to amount to even a grand in taxable gain which even that you're throwing just $150 on your tax bill. I swing trade and make perhaps $5k a year on swing trades and another $2k on options premiums which does bump my taxes up but again, between RE write offs and tax-advantaged account contributions I'm still in a low tax bracket and taxed at the same 22%. Not saying taxes are my favorite thing, just that you have to pay to play.

If you want a justification for generating tax liability, it allows me to raise funds to invest in long term investments much faster. I can sell monthly options contracts against many of my holdings and make 10x back passively on those holdings than I would have on dividends. Something like PLTR or SPCE are gambling stocks sure, but you can run an options wheel on them selling cash secured puts, getting assigned then selling covered calls until you get assigned to drum up a couple hundred dollars per month per position in cashflow and capital gains. It's a very efficient way to build an account's cash position to then roll into long term dividend yielding stocks.

At the end of the day...that's my way of doing things. For a lot of investors it IS a casino and it's a fun thing to throw a little cash at. You can't demean them for simply using the market in that way because it's a free market and free individuals are free to gamble on risky positions. If only straight laced serious investors got into stock investing (trading) then things would be boring and the market would be run by crooked ass hedge funds who manipulate the market on CNBC. Instead we have a now very democratic market run largely by retail investors who do things like run up meme stocks to squeeze out greedy hedge funds. Aside from being fun to watch it gets the average person involved in the stock market and maybe some of those will turn into "serious" investors and leverage the market to improve their financial situation. It's different things to everyone and that's the beauty.

[Myrkul]

Yes, I meant institutions in that 80% statistic. My larger point though is that the market isn't the same one that you're referencing. The tables have turned and now we're seeing outsized returns by sheer volume of retail traders moving company valuations around.

I'm not saying you're wrong for the average person. If you're not chasing alpha and doing a lot of research then sure you will not out-perform the market. I can point to funds like Berkshire or ARK or Pershing Square as having out-performed easily. They are the big ones but even if you look at retail traders there's a good 10% that have made such outsized gains making pure plays that even if they returned zero over the next 9 years they still will beat the market. Lots of people making pure plays and using leverage to do so and making pretty massive returns. Sure they lose some but it's a different approach.

Leverage also ALWAYS carries more risk. It's going to be a while before I can dig into those alts, but most of the Alpha on funds like that are really just liquidity premiums. Its a huge pain in the ass waiting for liquidity events and just not worth it. So I guess you are banking on being top 10% of retail investors this year? I don't like those odds. If I'm playing a game, and there is a 90% chance I loose, I'm not going to play. That's gambling, not investing.

You can harp on "short term" gains all you want or a 10 year time horizon but when it comes to beating the market it's what you're doing on a month-to-month basis that matters. You build gains a percentage at a time until you get 10 years down the road and look back at a successfully built account that has had market beating gains.

Oh man, I bet your CPA loves you. What does your tax situation look like shifting everything around once a month? If you hold a position for over a year you pay long term capital gains rates. So 15%-20% on the gains. Under a year, you are paying short term capital gains, which are identical to your ordinary income tax rates (30%?). So you aren't just trying to beat an index now, now you are trying to beat the tax code too.* So now your gains are getting hit with a 30% tax bill, is your performance good enough to overcome the tax code as well?

*(If your effective tax rate is under the long term capital gains rate you really can't afford much, if any risk. If you are doing this in a qualified account (IRA/401K/Roth/Etc.) Those are retirement accounts....please don't gamble with your retirement.)

You're pretty obtuse in how you actually measure "the market". If you're not using the S&P as a standard to beat, what are you using? How do you define "the market'?

Apples to apples man. Some funds benchmark against the S&P 500, some funds benchmark against the the S&P Mid-Cap 400. If you have an emerging markets hedge fund it doesn't make sense to benchmark that against the S&P. It's obviously going to be more risky, so you should expect higher higher returns and higher risk. Each investment needs to be benchmarked against an appropriate index. So it really is a case by case, fund by fund basis.

You're awfully coy about your "allocation" as well. So you just save money and stick it in some index? Which index? What are you doing to at least track the market and beat inflation? How do you hedge against inflation?

Pretty much. I can't disclose the exact funds, but I assure you they are all publicly traded indexes. Nothing crazy or wild, but its as aggressive as I can stomach. 8 funds total. I set it 3-4 years ago, have it set to automatically rebalance once a quarter, and check it maybe once or twice a year. Risk adjusted I doubt it beat the S&P, but I have been super happy with my returns though. My time horizon is long enough anyway that I really don't care. Returns will probably be less next year, markets like to return to the median, which over the last 100 or so years is around 7% a year. Why would I hedge inflation? The market already reflects inflation. Equity returns are far in excess of it. If you are super concerned about it just drop 5% of your bonds and dump it into your equities.

If you're a "financial expert" then surely you have some better advice for us than just stash money away and stick to the indices.

Absolutely. And you are really not going to like it, because it's boring and pretty hard for most people. 401(k)s allow you to to sock away $19,500 a year tax free. If you are over 50, that number goes up to $26,000 per year. Max it. It really doesn't even matter if its a target date fund. Just max it. If you already are maxing it every single year, there are other places to go. It REALLY is just about working the tax code to your advantage. If you have access to a Roth 401(k) through your employer, that's even better.

Plus I'm not sure what you're doing in this thread. Not to make you feel unwelcome but it's just a little strange to barge into a stock trading thread and say "you're all dumb for even trying, you can't beat the market". Chad move but still a little bit odd.

Ya. I'm a bit of a bleeding heart for the average investor. I'm not here to try and convince you. That's never going to happen. This is the internet, and I already know you are arrogant enough to think you can both beat the industry as a whole and beat the tax code on top of that. Why the FUCK would you listen to me if the tax code and the industry as a whole aren't enough? If you are actually that good go start a hedge fund and make a couple million a year making both yourself and your clients a metric fuck ton of money. I sincerely mean it when I say: Good luck! because you are going to need that in spades. I apologize if I'm coming off as a Chad, I am aware I have a tendency to do that. I'm only saying anything because I'm completely disgusted by how "casino like" apps like robin hood have made that market recently. It's all bullshit, I'm posting/replying at all in the hopes that someone on the fence sees this and "gets it".

[gabe]

Yes, I meant institutions in that 80% statistic. My larger point though is that the market isn't the same one that you're referencing. The tables have turned and now we're seeing outsized returns by sheer volume of retail traders moving company valuations around.

I'm not saying you're wrong for the average person. If you're not chasing alpha and doing a lot of research then sure you will not out-perform the market. I can point to funds like Berkshire or ARK or Pershing Square as having out-performed easily. They are the big ones but even if you look at retail traders there's a good 10% that have made such outsized gains making pure plays that even if they returned zero over the next 9 years they still will beat the market. Lots of people making pure plays and using leverage to do so and making pretty massive returns. Sure they lose some but it's a different approach.

You can harp on "short term" gains all you want or a 10 year time horizon but when it comes to beating the market it's what you're doing on a month-to-month basis that matters. You build gains a percentage at a time until you get 10 years down the road and look back at a successfully built account that has had market beating gains.

You're pretty obtuse in how you actually measure "the market". If you're not using the S&P as a standard to beat, what are you using? How do you define "the market'? You're awfully coy about your "allocation" as well. So you just save money and stick it in some index? Which index? What are you doing to at least track the market and beat inflation? How do you hedge against inflation? If you're a "financial expert" then surely you have some better advice for us than just stash money away and stick to the indices.

Plus I'm not sure what you're doing in this thread. Not to make you feel unwelcome but it's just a little strange to barge into a stock trading thread and say "you're all dumb for even trying, you can't beat the market". Chad move but still a little bit odd.

[Myrkul]

Oh man, I'd love to see who those are!

Do you think you could name a few for me to research? Should be easy if there are lots of them.

To compare apples to apples, lets say a 10 year time horizon and risk adjusted. The risk adjusted piece is especially important. Hedge funds are inherently risky. That's why they aren't offered to your typical retail investor. The average person can't take hedge fund level losses and be fine. It seems like you are equating raw returns to "performance", especially your comment about "Risk tolerance goes down as the portfolio grows".
So be sure when you share the funds and the returns that you include the beta.

My suspicion is that you are looking at short time horizons, and as you mentioned lots of people can beat it short term with some regularity. It always breaks down over time though, and that's the key.

Also super curious where you are getting that statistic about 80% of the market being hedge funds a few years ago. I can find a lot of statistics that INSTITUTIONS controlled 80% of the market a few years ago, but there are a ton of institutions that are not hedge funds... Not saying you are wrong, just saying I would love a source for that statistic.

Final point: There is more to indexing then just buying the S&P. You can buy small cap index funds, mid cap index funds, international index funds, developing markets index funds etc etc. Litterally just dumping everything into SPY isn't really indexing.

IMO hedge funds stopped being compelling the minute the SEC started to cracked down on them for insider trading. At the end of the day though, the beautiful part of investing is it's still your money. Do as you will with it. For me though, I'm going to just save aggressively, take the average for my allocation, and play paintball with all my free time instead of pointlessly trying to aquire alpha when it's not really possible or needed in the first place.

[gabe]

If $100,000,000,000 dollars can't get the job done, I sure as hell can't either. I'm going to buy and hold and just bank on the statistics that it will outperform active management over 95% of the time.

For my personal accounts, it's 100% index funds and ETFs all the way and I have never once regretted it. I check my personal performance maybe once or twice a year. Having seen 1000s of portfolio performance numbers, I can say with a great deal of confidence that sitting on my ass doing nothing has had by far better returns then any "strategy" I've ever seen. Just set your allocation right, do it cheaply, shovel as much cash as you can into it, and then walk away.

I hate to break it to ya but there's lots of hedge funds/managers/PE that beat the market on a regular basis. Lots of folks on the internet do too. Just because it's a large industry doesn't mean that the small guys can't win. Just look at the reversal in roles of hedge funds and retail investors. Just a few years ago the market was 80%+ hedge funds and less than 20% retail investors. Now that equation has flipped and we have anyone with a phone app investing in the stock market. Not saying everyone will beat the market but with a little DD and some smarts you can out-perform pretty handily. Heck if you just bought Tesla, Apple, MSFT, Amazon, or one of many others you've out-performed the S&P500 by a pretty wide margin.

There is of course a diminishing return to this and risk tolerance goes down as your account balance goes up but there are still smart plays out there to be made. Maybe the majority of retail traders aren't smart enough to beat the market but there will always be those that are smart enough to beat it on a regular basis. Not to mention derivatives and other incomes streams to be made off of stock holdings. Heck, just in income made off of selling covered calls and cash secured puts on my *largely S&P tracking* stock portfolio I've beaten the S&P this year.

[RAZRBAKK]

I'm just trying to gamble, ok?

[Axel]

Agreed. For me, this is entertainment--a few extra bucks after the bills are paid and the real investments are funded.

[Myrkul]

This whole thread is completely mind boggling to me.

The cold hard truth: Active investing doesn't work. Period. It doesn't matter if you are Warren Buffet, JP Morgan, or some day trader slinging stocks from his basement. Statistically speaking it cannot be done. You might be lucky enough to make the right call once. Maybe twice. Hell maybe even three times in a row. Long term though? It's just not going to happen, and in my opinion it's arrogant as all hell to think that any one person or individual is smart enough to "beat the system". ESPECIALLY when there is as much money as there is going into the system to fund people to do this as a full time job.

You will consistently get better returns focusing on cost cutting fund fees, playing the tax code, and indexing then you will ever get from trying to crystal ball this shit. I am not smart enough to do that. You are not smart enough to do that. There is a $100,000,000,000 industry that exsist and it's not smart enough to do that.

If $100,000,000,000 dollars can't get the job done, I sure as hell can't either. I'm going to buy and hold and just bank on the statistics that it will outperform active management over 95% of the time.

For my personal accounts, it's 100% index funds and ETFs all the way and I have never once regretted it. I check my personal performance maybe once or twice a year. Having seen 1000s of portfolio performance numbers, I can say with a great deal of confidence that sitting on my ass doing nothing has had by far better returns then any "strategy" I've ever seen. Just set your allocation right, do it cheaply, shovel as much cash as you can into it, and then walk away.

[RAZRBAKK]

I'mma keep shit-posting until this stupid bitch of a stock market crashes 50% over one weekend... here's another one for you.

Post on /r/wsb today $90.00 -> $24,000.00 gain from buying call options on STMP or stamps.com

Why is this relevant, because it makes me fucking jealous? 100%

But, actually, this is a big ass deal. What is stamps.com, it's a literal competitor to AMAZON.COM, it literally impedes their dropshipping model and their model for print on demand as now you have individual entities in this separate network making money not via AMAZON! Long story short... Amazon is like #1 FAAAG stock and it's literally kind of a dog-shit company that mainly deals in chinese goods and YES some chinese goods are very good like I got some sick ass digital calipers but when literally everyone starts shipping from home.. amazon is done.

"The company revealed Thursday it revoked the exclusivity stipulation of its deal with USPS, ultimately spurring the complete termination of its partnership. And it championed Amazon's foray into the shipping space, as reported in an SEC filing earlier this month. ... It's a big bet on Amazon, and dented Stamps.com stock."

Randome quote from Google. I decipher it as BIG COMPETITION between the two... and with recent blabbity blah whatever SPY is gonna hit 500 tomorrow GG I'm dumb lol

If you think about it though... amazon kind of is fucked in the long run as simple 'individual' competitors pop up. Imagine just fucking JOE NOBODY opening up a store drop shipping chinese goods using stamps.com to ship and yah hows y our business 360b revenue now but next yea? I dono.

GRASPING AT STRAWS LOL. Okay this my last post 4 now hope ya'll enjoy LOL

I kinda see what you're saying here, but dropshipping is by no means a new model, and I also don't think dropshippers would really be using stamps.com since they don't actually ship their own items. Unless stamps.com has another product model that works in the dropshipping space?

I do think Amazon has shot themselves in the foot by not protecting their FBA sellers. r/FullfillmentByAmazon has almost entirely been people complaining about Chinese sellers ripping off their entire product and listing, even claiming they were the original seller, and Amazon does absolutely nothing about it.

However, Amazon might also see this as an opportunity to pump AmazonBasics by allowing the Chinese sellers to push everyone off the platform, and then creating distrust of Chinese sellers so that people will opt for AmazonBasics versions of things.

This is not to discount stamps.com, the world needs more independent e-commerce retailers, and their service is massively helpful for smaller businesses.

[ReconSWS]

I'mma keep shit-posting until this stupid bitch of a stock market crashes 50% over one weekend... here's another one for you.

Post on /r/wsb today $90.00 -> $24,000.00 gain from buying call options on STMP or stamps.com

Why is this relevant, because it makes me fucking jealous? 100%

But, actually, this is a big ass deal. What is stamps.com, it's a literal competitor to AMAZON.COM, it literally impedes their dropshipping model and their model for print on demand as now you have individual entities in this separate network making money not via AMAZON! Long story short... Amazon is like #1 FAAAG stock and it's literally kind of a dog-shit company that mainly deals in chinese goods and YES some chinese goods are very good like I got some sick ass digital calipers but when literally everyone starts shipping from home.. amazon is done.

"The company revealed Thursday it revoked the exclusivity stipulation of its deal with USPS, ultimately spurring the complete termination of its partnership. And it championed Amazon's foray into the shipping space, as reported in an SEC filing earlier this month. ... It's a big bet on Amazon, and dented Stamps.com stock."

Randome quote from Google. I decipher it as BIG COMPETITION between the two... and with recent blabbity blah whatever SPY is gonna hit 500 tomorrow GG I'm dumb lol

If you think about it though... amazon kind of is fucked in the long run as simple 'individual' competitors pop up. Imagine just fucking JOE NOBODY opening up a store drop shipping chinese goods using stamps.com to ship and yah hows y our business 360b revenue now but next yea? I dono.

GRASPING AT STRAWS LOL. Okay this my last post 4 now hope ya'll enjoy LOL

[ReconSWS]

Okay - what do you all make of this? We just KEEP GOING UP RIGHT? No coincidences right? Everything peachy? (There has been a recent blast of youtubers claiming market crash... moreso than usual)

Jim Cramer during Covid Crash Timestamped saying credit lines are key: https://youtu.be/siaVsbLLrpg?t=119

Random stock dude commenting on wells fargo stopping bank loans : https://youtu.be/AH9ecNo3nAc?t=489

[ReconSWS]

gay.PNG

Okay so this wasn't the rationale for my buying options on 3x bear and fear index. I just wanted to gamble my stim.. but what the FUCK is going on with these treasury yield numbers first of all (INVERTED CURVES) are very bad and maybe I'm not experienced enough to judge the degree of inversion but yesterday and today have inverted numbers (i.e. one set lower than the other). Also the 10y yields are going down like shit and everyone is always like yooo the 10y ehhh the 10y so thats the one to look at.

I look at these yield curve numbers weekly, and this month is absolutely a new paradigm. It's boring as fuck checkin in most weeks but dang something is a brewing (most likely just more fuel to go up to infinity lol fuck the bears amirite)

[ReconSWS]

SPXS 25C 7/16 x 40
VIX 47.5C 7/21 x 25

Semantically, I'm not allowed to go short since my sub-conscious is actually afraid of infinite losses and the responsibilities of borrowing, and being margin called a pussy. We're only allowed to play with the safety-scissors although we've kind of sharpened them up into a prison shank (generally useless, but it CAN get the job done after about 97 stabs).

[ReconSWS]

Short shorts ON!

[gabe]

The market is highly irrational right now. Time to go short.

(PS: Recon, you go short and I'll inverse your trades)