Warren Buffett famously said, “If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.” I found that to be true when I was 22 and sitting down for the occasional poker game. I wasn’t any good and was just relying on luck.
Many people are playing that same game in the stock market today. They take a sum of money and start investing in things without doing any hard research. They hop in and out of things rapidly, trying to outsmart everybody else. I wrote my college thesis on people like this. My conclusion – it doesn’t work.
Like poker, luck plays a role in investing. Also like poker, luck eventually runs out in investing. If you’re sitting at home trading stocks for fun with a small sum of money, that’s great. I hope you enjoy it and that you learn some stuff along the way. If you’re investing large sums that way with the idea that you can outsmart people who do this as a living, just stop. You can’t.
Active management is a zero-sum game. For someone to outperform the market, someone else must lose. Who do you think loses on average? The pros with all their time and resources or you?
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