Hello,
I made beatthecouch.com in July and it’s basically a game where you try to beat the S&P 500 and buy/sell when you want. Your opponent is a couch. It buys on day one and never sells.
Now over 100K+ games later, the hypothesis stands: it’s not wise to try to trade and time the market. Here’s the original data from the actual games itself.
Source: the game’s own database, every completed game Jul 12 to Aug 28. Tool: Python and matplotlib. Market data: S&P 500 daily total returns 1928 to 2019.
thanks!
The market is easy-hard to make money in.
Easy: pick index funds, put your money in, keep putting money in regularly. That’s it.
Hard: don’t fuck with it. Don’t touch it. Don’t try to time it. Don’t panic and sell if the market rolls back. Don’t listen to people trying to tell you how to get rich quick. Don’t let people manage your money, they’ll move shit around and incur fees and taxes.
That’s how you do it. Yeah, there are people who get lucky and pull a win out of their asses on individual stocks. They’re the exception, that’s why they stand out compared to 99% of the rest of investors. But to win long term? Just do the above.
Judging by the change done to the NASDAQ 100 so that Space X could be in the index soon after IPO instead of having to stay out for longer and obey certain conditions like all other recently IPO-ed stock, even putting your money in an index fund isn’t safe anymore since in average stocks after IPOs massively underperform and that inclusion in the NASDAQ 100 forced index funds tracking it to buy the stock at its peak price (the stock price is still well below that, even below its IPO price).
So even owning index funds is now just another way to be one more of the retail sheep that’s there to get sheared by well connected insiders and pros.
Just put half your savings in gold and half in index funds.
Don’t make me tap the sign…
Past performance is not an indication of future returns
This applies to index funds too. An entire market that runs on index funds cannot function at all, and the more they dominate the more risky the outcome. Past stock markets do not indicate what will happen in future, the distribution is different.
These articles/games push a message to invest and don’t think, it is not a good message
That’s the incorrect conclusion.
People claiming that by regularly adjusting your portfolio, they can get you better returns, are more often incorrect.
That’s not a correct conclusion either
are more often incorrect
Have previously been incorrect to an extent.
You do have to adjust a portfolio over time regardless.
And it may be the case that in future value-based investing is more successful than index tracking, which is especially the case when index funds get detached from the value of the underlying business.
Actual performance of a business does matter
Have previously been incorrect to an extent.
Your insert of “Previously” is misleading. There exists no evidence that active management will be more correct in the future either.
value-based investing is more successful than index tracking
You fundamentally misunderstand. You can invest in indicies that track value. The important point is the need to avoid the management and transaction fees of active funds.
How come the couch wins, when it’s an exact tie? That seems to skew the result.
Because an exact tie means you could effectively also be the couch. In which case, a couch won, whether it was you or the couch.
There are major societal drawbacks in investing in indices, even though one might benefit personally.
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You don’t hold the shares, the index fund managers do. So you don’t sit at the board of shareholders and the index managers may not have the same idea as you on how businesses should be handled. Typically, short term gains at the expense of long term social and environmental balance.
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The stock market is basically a machine to separate good business from bad one. You invest in underrated companies and divest from overrated ones. Once a significant portion of the investors put their money in indices, the whole market goes up or down together, there is no more filtering. Healthy businesses might go down because bad ones go bankrupt… rings a bell? Subprime crisis anyone?
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So the top 10% of players is comparable to the top 10% of monkeys? Would the “Skilled” category not be lucky as well? I mean, a p-value of 10% is not great…
As part of my econ degree, we did the math where you pick 20-30 stocks and bonds, toss 30 years of their returns into a matrix, sacrifice a falafel, and figure out the optimal portfolio.
The day we turned in the projects (it was too much math, but like I got the computer to do the linear algebra for me so it only took like 15 minutes. I think it was supposed to take a month or something but I needed enchiladas) we watched a 60 minutes or some other news clip abouta group of economists and a group of stock brokers having an investment competition. They would reach start with 10k of fake seed money, and they’d invest in a fake stock market. Whichever group had the higher average earnings/lowest loss at the end of I don’t remember got bragging rights. The stock brokers all day traded, the economists all bought index funds and never touched their investments again. There were a few brokers who had huge earnings, but most of them lost big. All the economists had modest gains. Most of the brokers lost everything. The economists won. Which of course, he wouldn’t have shown it to us, the economics department, if they’d lost.
When you play the market, you are handicapping yourself with your trading costs, which as a small player will be high. After this, you are betting that you are smarter than the average dollar invested. This is a bad bet.
You could win, if you got the right hands. But the more trades you make, the more your results trend toward your average, and the more the information asymmetry hits. Do you actually know more about these trades than the industrial investors who do this for a living?
Let me put things this way: I worked in Investment Banking as a software developer for the front-office - so directly with traders - at one point in my career, and if people think those guys and galls aren’t breaking ever trading rule and regulation (especially insider trading and market manipulation) whilst the Market Regulator very purposefully looks the other way, I have a piece of water crossing property to sell you.
(And this is just normal trading, not even algorithmic trading, were the whole thing is rigged in even more reliable ways like faster than retail access to market information or direct access to the order stack)
Playing the Market as Retail is a mug’s game.
Better to just buy mutual funds and leave the money alone
You should calculate portfolio Sharpe/Sortino ratios. Hedge funds for instance often also do not beat just buying an S&P500 ETF, but have less volatile returns (smaller drawdowns) because they go long on some stocks and short on others, which does better in a downturn.
Then they suddenly blow up because one off deep out of the money options they have been writing for steady income suddenly pays out.
The simulation is cute, but it’s also heavily stacked in favor of buy-and-hold by
a) the selected timeline (from 1928 to 2019 the trajectory of the market was overwhelmingly upwards)
b) the limited timespan (only two years to play, so you never have enough time to glean information from the simulation)
And - most importantly
c) no additional information to make your decisions
You can’t see the prevailing interest rates. You can’t see p/e ratios. You can’t see what the S&P is invested in at a given moment.
It’s a rigged game, where “buy and hold” is always the optimal strategy.
Vary a, b, or c such that sitting on your money is optimal and you can “beat the couch” more often than not
Saying that a near century long period is a bad sample is a little obtuse IMO
A “near” century that conspicuously omits the Roaring Twenties leading into the worst market crash in history and the COVID crash at the end.
As a counterexample, if you consider the Nikkie’s historical run - from it’s inception in 1950 to the 2019 benchmarks, the slog from the 1989 downturn to 2019 produces a negative ROI, about −1.65% annualized in yen. The Nikkei closed 1989 at 38,915.87 and 2019 at 23,656.62.
Any Beat the Couch gambit during this period rewards people for staying in cash.
Of course… since 2019, the Nikkei has seen a whooping 17% annualized return, skyrocketing to 66,405.56
The S&P, by comparison, only grew 13% annually.
So if you’re playing “Beat the Couch” with the Nikkei as an option, you can win by holding that over the S&P.
But the real TL;DR; of it is that past performance isn’t an indication of future success. You can’t invest in the historical market. You have to play the market that exists today, without knowing in advance what the future return will be.
thanks for this write-up! i still feel i don’t particularly understand, but i enjoyed reading it!
I mean if we include up to 2026 buy and hold is up even more. If anything this is underestimating lmao
I showed this to a friend and he was like “but without knowing what’s happening in the world, it’s a lot harder”
I said, “like insider trading?”
He said “no, no, other stuff.”
Insider trading is definitely frequently used to unfairly beat the market but in your friends defense, there is a difference between knowledge of current world and market conditions and insider trading.
Current world and market conditions (non-insider trading) are baked into the prices already.
Someone is able to profit off of it, but you have to be far faster than any of us could ever hope to be. There’s a lot of money spent on trying to shave nanoseconds off of trading times for this reason. Unless you’re working for one of these companies with access, you can’t beat them, and the conditions have already been baked in.
I said, “like insider trading?”
You don’t need to be an inside-trader to make a better investment than “buy and hold the S&P indefinitely”
I can Beat the Couch in this game very easily if you start the game in 1971 and let me invest in the NASDAQ instead.
Let me buy-and-hold Microsoft or Oracle or NVIDIA and I can do even better.
Stick me with the DOW and I will almost never win.
That has the advantage of hindsight, though. At the time Microsoft came on the market, would you have been as confident as you are now that your buy-in was a good choice? Without knowing how the market is going to move, would you have known that NASDAQ was the right market to pay in? Can you pick the Microsofts and Oracles of today with a high degree of confidence without insider information?
I’m not saying it’s not possible, but it would be much more difficult, the confidence wouldn’t be as high, and not many people could beat the couch doing it. If it were so easy to beat the couch, a lot more people would be very rich.
That has the advantage of hindsight, though.
It all does. That’s the problem with the game. You pick an index over a period during which there’s a significant positive return and say the Couch gets the benefit of this return baked in.
But I can’t put my money into the S&P from 1929 to 2019. I have to play the market from 2026 onward. There’s no guarantee I’ll see the same results in the next fifty years that I saw in the last fifty.
Without knowing how the market is going to move, would you have known that NASDAQ was the right market to pay in? Can you pick the Microsofts and Oracles of today with a high degree of confidence without insider information?
You could say the same thing about the S&P. The only reason we’re using that instead of, say, the Nikkei (which has an outright negative annual return from 1989 to 2019) is because it gives the couch a baked in advantage.
If it were so easy to beat the couch, a lot more people would be very rich.
It’s easy to beat the couch if you have an option other than “cash”. But it isn’t easy to beat the S&P if you have no other information than a few weeks or months worth of stock ticker data.
The bottom line is that you need a theory behind your investment that goes further than “it went up last year, so it must go to next year”.
That road leads to a large position in Bitcoin.
Years ago, I managed a high-end restaurant. And twice a year a local brokerage firm would rent out the entire restaurant (to the tune of about $30,000) and treat their best clients for dinner.
I always asked the brokers what they invested their own money in. The answer was always the same, an index fund.
Every actual expert who is not trying to sell you something will tell you the same
Isn’t this essentially a lesson that the market goes up on average?
Of course you can’t expect to beat the average trend with uninformed guesses. Do people actually trade like that?
That’s what money managers do.
Generally, you can’t expect to beat the market even with informed guesses. That’s the point.
That’s isn’t the point though, because that’s not what the game shows. That might be the point the creator is trying to make, but it’s not what the game is.
You’ve been added to the Best of Lemmy: https://sh.itjust.works/post/65897371
I am a couch, apparently. I don’t recall ever having sold anything I bought.
Indexes are great, but S&P 500 is a US focused index. Would you have the same results if you picked an index based on Britain or Italy over the same time span?
I feel like that sort of thing is going to matter as China keeps rising while the US keeps shooting itself in the foot.
You are correct. Also 50% of the world’s wealth is in real estate. The return on owned domiciles will be the overwhelming factor for most normal people.
![[OC] People tried to beat the stock market 100K+ times in a simulation. They lost, a lot.](https://lemmy.world/pictrs/image/4f3baec5-843f-4b8a-b46d-e7b0237dc72f.png){kind=link}