MEGAGUIDE: HOW TO INVEST YOUR MONEY BETTER THAN A PROFESSIONAL INVESTING MANAGER (BACKED UP BY RESEARCH DATA)

[Foreverbrad]

if you invest $500 per month for 10 years, you'll have more than $100,000.00. So if you start at your 20's, you'll have one hundred thousand dollars in your 30's.

Which is nothing.

 

[geenger]

Which is nothing.

This is the type of opinion that shows me youre the average guy in .org who doesnt go outside and is delusional. Your profile pic is funny as hell tho i'll give you that

 

[Foreverbrad]

This is the type of opinion that shows me youre the average guy in .org who doesnt go outside and is delusional. Your profile pic is funny as hell tho i'll give you that

It’s foids who are delusional unfortunately. $100k won’t even make them blink in the context of a 30 yo guys networth. You also can’t even buy an apartment for $100k, it’s nice but it’s simply not life changing or impressive money.

 

[geenger]

It’s foids who are delusional unfortunately. $100k won’t even make them blink in the context of a 30 yo guys networth. You also can’t even buy an apartment for $100k, it’s nice but it’s simply not life changing or impressive money.

lets not twist the things you said. You said "100k is nothing". Now youre trying to make it sound like you meant it "isnt that impressive" or "isnt life changing". But anyways this debate we are having is pointless because this is a matter of opinion. If in your opinion its not impressive then I cant do anything about it lol

 

[Spookybah]

DNR just do options trading

 

[Bonesbonesbonesbone]

Only time I actually read every single molecule, good fucking thread.

 

[tomcaelum]

Welcome to my megaguide on how to invest your money in the best way possible.

I’ll teach you the objectively best way to invest your money, and I’ll show PROOF that this way of investing gives you better results than the ones PROFESSIONAL INVESTING FUND MANAGERS get.

This is NOT clickbait, because there is academic research that proves that this strategy outperforms professional investors, and I will include these academic papers in this thread so that you have access to them

After learning everything that is in this thread you will be ready to be ahead of 99,9% of people when it comes to investing your money.

I hope yall enjoy this guide. Lets go.

WHERE TO INVEST?

Before talking about how to invest, we need to figure out what we should invest in. Stocks? Crypto? Dollar? Bonds? Well, the answer to this is quite simple. Take a look at the graphic below:

As we can see, when compared to other asset classes, stocks have (since 1802) outperformed basically everything consistently, by a very large margin. This would be enough for me to show you how they are obviously better and more profitable than Dollar, Gold, Bills and Bonds.

But, if you pay attention to the graphic, you’ll see that crypto is not included there. So what about crypto then? Is it better than stocks?

The answer, based on the current research, is that it is not. because of the simple fact that their expected returns are unknown. This is the general consensus in the academic investing space, as researchers couldn't figure out a way to reliably predict their returns. That means that crypto is completely unpredictable and highly speculative. Don't be a fool, yall. If the most capable people couldn’t do it, you are not gonna be the next genius to reliably predict the expected returns of investing in crypto, so it's not a reliable investing option.

Plus, the most reasonable possibility, according to the past performance of crypto in general, is that they behave in a similar way to a type of stocks called "small cap growth stocks", and these stocks are not the ones you should focus on if you want to invest in the most optimal way.

If you wanna go more in depth about why crypto is not a good investing option, check the following video linked below, from 34:37 to 51:36. This is an interview with Ben Felix, who has the CFA certification (literally the highest status investment certification in the world), and he goes deeper on why crypto is not worth it.

Ben Felix Talks Investing in Crypto, Revolutionary Tech, and Academic Research

The conclusion is: Stocks are the best investing option in the world, and in the following paragraphs, I will teach you how to invest in them in the best way possible for you to moneymax.

HOW TO INVEST IN STOCKS?

We can, initially, separate the stock market investing strategies into two groups (spoiler: one of them is completely bullshit):

Long term investing and short term investing

Long term investing works by investing in stocks basically with the goal of building your “money empire” during your lifetime.
Short term investing, as known as trading, works by buying and selling stocks in the short term, sometimes even in the same day (as known as day trading), with the goal of selling the stock by a higher price than the one you paid when you bought it.

Short term investing is 100% bullshit. This happens because EVERY. SINGLE. PIECE. OF. DATA. that we have leads to the same conclusions: it doesnt work. Here are some of the studies that prove what I am saying:

https://faculty.haas.berkeley.edu/odean/papers current versions/individual_investor_performance_final.pdf (this study found out that active traders underperformed the market average by 10.3 percent annually).

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2535636 (to summarize the findings of this study, take a look at this direct quote taken from it: “day trading is an industry that consistently and reliably loses money. From an industrial organization perspective, it is difficult to understand how such an industry survives. For people to knowingly day trade, most must either be overconfident about their prospects of success or derive non-financial utility from the activity and knowingly suffer losses as a result.”)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3423101 (this study found out that literally 99% of the day traders LOSE money. It's not even like they have positive but below average results. They literally lose money. 99% of them, statistically).

Clearly short term investing is not the best alternative for you. You should invest for the long term. And if you want to learn how to do it in the best way possible, pay attention to the following paragraphs, because I'm gonna teach you how to actually do it.

First of all, you need to understand what would be an average, a good and a bad stock for you to invest. Take a look at the following graphic:

This is very important for you to understand how to invest in stocks. This is the risk-return graphic, and it is very simple: the higher the risk of a certain stock, the higher the expected returns of that stock tend to be (consider “returns” as the extra money you make from investing in that stock). There is a complex reason behind why that happens, but there is no need for me to go in depth about why this happens. What you need to know is that it is true, this is basic level investing knowledge and there is literally no one in the whole investing industry that disagrees with that. The higher the risk, the higher the return.

Now, take a look at the illustration I made in the graphic (I added a red dot and a blue dot. Consider each of them as a different stock):

Which of these two stocks would you consider the better stock for you to invest in? If you said “the blue one” because it offers higher returns, you are wrong, because even though it offers higher returns, it also has a higher level of risk associated with it, and it's not necessarily better than the red one that has lower levels of risk and lower levels of return. Conservative investors that dont wanna be too risky might choose the red one. Investors that are willing to take some more risk for higher expected returns might choose the blue one. But, objectively, there is no “better” one between these two stocks, because they have the SAME RISK/RETURN RATIO.

Now, take a look at this other example:

Now, in THIS case, the blue stock is objectively better than the red one, as it offers the same levels of return, with a lower risk. This means it has a better risk/return ratio and is an objectively better stock, because by investing in this stock you would generate ALPHA. Alpha, in the stock market, is what we call a better than average risk/return ratio. These would be the stocks that really bring abnormally good results for you as an investor.

This is the type of stocks that professional fund managers (basically the most qualified people in the world to select stocks to invest in) try to find, and they do that by searching for UNDERPRICED stocks (stocks that have a price that is too low compared to the price they should have), as, in theory, an underpriced stock would have a better risk/return ratio. And there are a lot of techniques they use to find these underpriced stocks. These techniques are called valuation techniques.

There is one problem though… The data shows us that… They can't do it.

Think about it: Fund managers, when looking for underpriced stocks, tend to invest in stocks that have a lower price (obviously), and stocks with lower price (as known as value stocks) are usually associated with higher levels of risk (you are going to understand why that happens later in this thread). So, if they were being successful in finding the underpriced stocks (and generating alpha), their returns should be exceptionally higher than the stock market average, right? Well… That does not happen, and i’ll show you a study that proves that:

The study in question is called “SPIVA”, and it is directed by Standard & Poor’s (S&P) which is the same company responsible for creating the american stock market’s index. They analyzed the performance of actively managed investing funds in stock markets all over the world for more than 15 years, and the findings are surprising:

They found that, after 15 years, nearly 90% of the investing funds UNDERPERFORMED the market (had a lower than average return). Here is the part of the study that comes to this conclusion:

This is the US part of the study. But they also analyzed latin america, europe, asia, africa and australia, and the results are similar for every region of the world. Fund managers are the most intellectually capable professionals to try to do it, yet they still can't outperform the market average. here is the link to this research: https://www.spglobal.com/spdji/en/research-insights/spiva/

And what do these results mean? They mean that it's not possible to find “underpriced” stocks, because if it was possible, investing fund managers would be able to find them and outperform the stock market. But they can't. Which means that you cannot generate alpha (having higher returns with lower levels of risk) in the stock market.

This happens because of the Efficient Market Hypothesis (EMH), a investing hypothesis created by Eugene Fama (this guy won a Nobel Prize in economic sciences and is among the greatest investing geniuses to ever live by the way). I am not gonna explain everything about this hypothesis as y'all don't necessarily need to know everything about it, and also this thread would get too complex if I included that here, but I can make a thread about that in the future if yall want.

“Ok, 90% of professional investing fund managers couldnt outperform the market average… But what about the 10% of these professionals that could outperform the market?” The following study analyzed these fund performances, and concluded that they did not generate alpha, and that they outperformed the market because of pure luck. This is a very reasonable conclusion, since the evidence shows us that the vast majority of professionals that outperformed the market during a 10 year period tend to underperform it in the 10 years following this "lucky" period they have. If it was because they are skilled managers, they would be able to keep doing it consistently for various decades. But thats not the case. This study is linked down below:

On Persistence in Mutual Fund Performance on JSTOR

Mark M. Carhart, On Persistence in Mutual Fund Performance, The Journal of Finance, Vol. 52, No. 1 (Mar., 1997), pp. 57-82

www.jstor.org

Even WARREN BUFFETT, which is widely known as the GREATEST INVESTOR OF ALL TIME, cannot significantly outperform the market average in today’s age. Look at this graphic comparing his company’s (Berkshire Hathaway) performance to the american market’s average (S&P500):

He used to outperform the market by a large margin from 1970 - 1998, thats why he is regarded as the greatest. But his performance, since 1999, has been very similar to the average.

So you might be thinking: “Well… If not even the best professional investors in the world can beat the stock market average, then what should I do?”, right? Well, fortunately, there is a pretty simple solution to that, and it's called “Passive investing"

PASSIVE INVESTING

Passive investing basically consists of investing in ETF's.

ETF stands for “Exchange-traded fund”, and its basically a fund that is negotiated in the stock market, and that, generally, invests in the same stocks that make the market index (index = a group of stocks that represent the whole stock market), thus copying the stock market’s performance. It's a passive investing fund, as it doesnt have a manager trying to "FiNd UnDeRpRiCeD sToCkS". It literally just copies the index. And do you remember how 90% of professional fund managers can’t beat the market index? That means by investing in one of these "ETFs", your performance would be better than 90% of investing managers, and even Warren Buffett, the greatest investor of all time, wouldn't be able to outperform you by a significant margin. Sounds good, doesn't it?

For investing in these ETFs, I recommend opening a brokerage account on an american broker, so that you have access to the american stock market. I am not gonna teach you how to do it because you can easily find that type of information on the internet. It's a simple process and will take you like 20 minutes. You should do it because the American stock market has way more ETF options than any other country’s stock market.

In the american stock market, you will have access to global ETFs (ETFs that copy the global stock market index), and this is great, because globally diversifying your investing portfolio is a very rational decision. Take Japan's stock market index, “Nikkei 225”, as an example: it has literally been “walking sideways” and stuck in the same position for like 30 years. How can you guarantee this won't happen to your country? You can't. But if you invest globally, this won't be a problem, because, when combining all the countries, the global stock market has never had a larger losing period than 6 years. In the long run, it's always positive. ALWAYS.

I will save you some time: The most widely known ETF that copies the global index is called “VT”. Just search up “VT ETF” and you will be able to find all the information about it. It is owned by Vanguard which is among the biggest, most popular and most reliable investing management companies in the world. By investing in it, you will, as proven before, outperform 90% of investing managers. Here is a screenshot I took from VT's performance since 2008 (dont mind the shitty quality of my screenshot, I dont know why its that bad) (also the text on the screenshot is in portuguese because I live in Brazil, just saying that so yall dont get confused lol). You can also find this graphic by just searching up "VT ETF" on google.

View attachment 3087817

See how the price of the ETF literally more than doubled since then. That means that if someone invested 1 million dollars in it in 2008, and never invested more money there, they would have more than 2 million dollars nowadays. And I'll remind you again: The studies I showed you proved that this performance is better than 90% of professional investors. Thats how good it is. And you get it by simply investing in this ETF, without having to analyze "which stock is better than the other" and all that stuff.

But you need to remember how investing works: its not something that makes you rich overnight. Remember: SHORT TERM INVESTING IS BULLSHIT, and I already proved that to you before as well. If you are going to invest in this, you should, each month, separate some money from your salary to put on this ETF. And you should KEEP YOUR MONEY THERE. Do not be selling your ETF shares because “X person said this” or “Y person said that”. Just remember how everyone sold their stocks during the covid pandemic, and how they lost a lot of money doing that.

Its very common for people to see the price of their stocks/ETFs go down during a crisis, become desperate, and sell their shares because they are “scared to lose more money”. But by doing this they are actually missing out on the post-crisis gains. In every single crisis of the history of the world, the stock market dropped, but rapidly came back after that. Look at the world’s stock market index and see how it always comes back up after going down because of a global crisis.

(unfortunately this graphic only goes until 2019 and I couldnt find a graphic that highlights the financial crisis timeline that went past 2019. If you would like to see how this graphic goes after 2019, you can search up on google "MSCI World Index graphic" and go to "images").

So, dont be desperate. Do not sell your ETF shares. Keep holding them and buying more month by month. Each year you will have more money invested, until your expected yearly returns of 7% - 10% represent an amount of money that is large enough for you to live off it, and retire from your actual job. How much time this will take depends on how much money you make per month from your job. Investing, when done right, is a way to make you be able to retire earlier, and a way to build your financial empire during your whole lifetime. That's how every legendary investor got rich, and if anyone says something like “Invest in this magic investment for 1 year and you will suddenly become rich”, please dont listen to them, because they are 100% scamming you.

So… As I said, VT is a great ETF option for you to copy the global market index. And, referring to the money you separated to invest in the stock market, if you want to invest everything in VT, that's completely valid, because this is not a “super risky” way to invest, as you will be diversifying your money globally (also, VT has more than 9000 stocks in it, so you are not “putting all of your eggs in one basket”). Plus, remember that by investing in it your performance will be better than 90% of professional fund managers. I am being a bit repetitive on that because its for you to see how great of an investment option it is.

So, if you were to stop reading the thread right now and invested in VT, this would be a great approach to your investments.

But, if you want to get more advanced and boost your returns even more, be welcome to learn how to be a FACTOR INVESTOR. I will teach you how to do it in the next paragraphs so pay close attention.


FACTOR INVESTING

Factor investing consists on investing on stocks that have exposure to some certain "risk factors"

As we saw by the studies mentioned in this thread, it's not possible to generate alpha (higher levels of return with low levels of risk). If you want to have a higher performance, you need to take more risks. So, you might be asking yourself: “Does that mean that if we PURPOSEFULLY invest in riskier stocks, we will outperform the stock market index, as the levels of expected returns are always proportionate to the levels of risk that a stock has?”, and the answer to that is: Yes, there is a way to do this. Ladies and gentleman, I present to you the art of FACTOR INVESTING.

Do you remember when I mentioned Eugene Fama? That guy that won the Economic Sciences Nobel Prize? Well, he also dedicated a part of his career as a researcher to find out which types of stocks were riskier than others. And, to find that out, he, along with his research partner Kenneth French, developed several models. (The most famous ones were the "CAPM", the "three factor model" and the "five factor model"). These models were an attempt to try to determine which factors make a stock riskier than the others. And, with the evolution of these models, they have been able to find out several risk factors that make stocks riskier and, consequently, more profitable for the investor in the long term.

The two main factors you need to focus on are: Size and Value.

The size factor works in a way that stocks of smaller companies (in terms of market cap) tend to be riskier than stocks of big cap companies.

The value factor works in a way that value stocks (stocks with a lower price) tend to have higher levels of risk associated with them, when compared to stocks with a higher price.

(There are also other factors such as "profitability", "investment level of the company", "momentum" and "market beta", but these are all either not 100% well accepted by the current researchers we have, or not accessible in the investment options available to average investors).

So, how could we factor invest using the size and value risk factors? The good news is that there are specialized factor investing ETFs that copy indexes that are composed of value stocks and small cap stocks, thus tending to outperform the overall market index, and boost your returns even more. The bad news is that the factor investing industry is relatively new. So far, we only have high quality factor investing ETFs that target the US market, not the global market. But there is still a way for us to take advantage of this, as the US represents roughly 55% of the global stock market. So we can invest 55% of our money in a factor investing ETF that targets the US, and 45% of our money in a total market ETF that targets the rest of the world, excluding the US (yes, there are ETFs that do this).

The US factor investing ETF is called “IJS”. it targets small cap value stocks (stocks of small companies and that have a low stock price, basically investing accordingly to the value and size factors). And The global Ex-US (excluding US) ETF is called “VXUS”

So, here is a quick summary of the routes you can follow:

- If you want to just generically invest on the global stock market, you can put 100% of your money in VT.
- If you want to use factor investing to boost your returns, my suggestion is for you to invest 55% in IJS and 45% in VXUS.
Both of these options are completely valid. I, personally, am a factor investor, but I also know very intelligent people who know a lot about investments that only invest in VT as they prefer a more simplistic approach to investing, which is completely fine as well.

All of these ETFs are available in the American stock market

So, basically I gave you, for free, all the information you need to know to invest better than a professional investing fund manager. Plus I literally gave you the names of the things you should invest in. Most paid investing courses are very expensive and the methods that most of them teach don't come close to this strategy, as this is objectively the best way to invest your money in the stock market according to the data that we currently have.

You are welcome

And, if you want to learn more about investments, I suggest visiting Ben Felix’s youtube channel. As I said before, he is a CFA, which means he has the highest status investing certification in the world, and he is the one who introduced me to this investing strategy. For the most complete education possible, I suggest scrolling down to his first video and, starting from there, watching all of his videos on chronological order. Here is the link to his channel: www.youtube.com/@BenFelixCSI

If yall have any doubts, just send them here in this thread and I’ll try to answer everyone.

(BOTB Worthy?)

Some guys asked me to tag them in this thread so here ya go: @PseudoMaxxer @user123456 @ShawarmaFilth @Tylermax @oppastoppathe2nd​

Stocks and shit isn’t my main business model but I’ve made a lot of money at a young age and want to invest. Is this all I need to know to get started?

 

[geenger]

Stocks and shit isn’t my main business model but I’ve made a lot of money at a young age and want to invest. Is this all I need to know to get started?

Yes pretty much

 

[lunar.]

very great thread bro i was probably going to get scammed by some tiktoker selling day trading courses. what do you think about investing based on events, like investing in pfizer during early covid or amazon buying whole foods?

efficient market hypothesis he talked about refers to this. because the stock market has billions of players, the stock market reacts extremely quickly to information. thus according to the emh the stock market only reacts to “new information.” and what may be new information to you may already be known by others for months. if you’re a regular consumer who doesn’t have insider info, the information you’re thinking of trading on has been 99.9% priced in and the current price already reflects future expectations

 

[thecalling]

/qa/

 

[exo]

 

[RQQ]

What are the best apps which are also trustworthy to trade on ?

 

[pablow5]

But Im 13, i cant right?

 

[geenger]

efficient market hypothesis he talked about refers to this. because the stock market has billions of players, the stock market reacts extremely quickly to information. thus according to the emh the stock market only reacts to “new information.” and what may be new information to you may already be known by others for months. if you’re a regular consumer who doesn’t have insider info, the information you’re thinking of trading on has been 99.9% priced in and the current price already reflects future expectations

on point

 

[geenger]

What are the best apps which are also trustworthy to trade on ?

you mean brokers. if we are talking about brokers to invest in the american stock market, you can either invest in a reliable american broker (I recommend Charles Schwab and have been a client of them for years), or check alternatives of local trustworthy brokers in your country that give you direct access to the american stock market (thats what I currently do. I live in Brazil so I use a broker called "Nomad" as it has lower fees than Schwab).

 

[Chowdog]

Welcome to my megaguide on how to invest your money in the best way possible.

I’ll teach you the objectively best way to invest your money, and I’ll show PROOF that this way of investing gives you better results than the ones PROFESSIONAL INVESTING FUND MANAGERS get.

This is NOT clickbait, because there is academic research that proves that this strategy outperforms professional investors, and I will include these academic papers in this thread so that you have access to them

After learning everything that is in this thread you will be ready to be ahead of 99,9% of people when it comes to investing your money.

I hope yall enjoy this guide. Lets go.

WHERE TO INVEST?

Before talking about how to invest, we need to figure out what we should invest in. Stocks? Crypto? Dollar? Bonds? Well, the answer to this is quite simple. Take a look at the graphic below:

As we can see, when compared to other asset classes, stocks have (since 1802) outperformed basically everything consistently, by a very large margin. This would be enough for me to show you how they are obviously better and more profitable than Dollar, Gold, Bills and Bonds.

But, if you pay attention to the graphic, you’ll see that crypto is not included there. So what about crypto then? Is it better than stocks?

The answer, based on the current research, is that it is not. because of the simple fact that their expected returns are unknown. This is the general consensus in the academic investing space, as researchers couldn't figure out a way to reliably predict their returns. That means that crypto is completely unpredictable and highly speculative. Don't be a fool, yall. If the most capable people couldn’t do it, you are not gonna be the next genius to reliably predict the expected returns of investing in crypto, so it's not a reliable investing option.

Plus, the most reasonable possibility, according to the past performance of crypto in general, is that they behave in a similar way to a type of stocks called "small cap growth stocks", and these stocks are not the ones you should focus on if you want to invest in the most optimal way.

If you wanna go more in depth about why crypto is not a good investing option, check the following video linked below, from 34:37 to 51:36. This is an interview with Ben Felix, who has the CFA certification (literally the highest status investment certification in the world), and he goes deeper on why crypto is not worth it.

Ben Felix Talks Investing in Crypto, Revolutionary Tech, and Academic Research

The conclusion is: Stocks are the best investing option in the world, and in the following paragraphs, I will teach you how to invest in them in the best way possible for you to moneymax.

HOW TO INVEST IN STOCKS?

We can, initially, separate the stock market investing strategies into two groups (spoiler: one of them is completely bullshit):

Long term investing and short term investing

Long term investing works by investing in stocks basically with the goal of building your “money empire” during your lifetime.
Short term investing, as known as trading, works by buying and selling stocks in the short term, sometimes even in the same day (as known as day trading), with the goal of selling the stock by a higher price than the one you paid when you bought it.

Short term investing is 100% bullshit. This happens because EVERY. SINGLE. PIECE. OF. DATA. that we have leads to the same conclusions: it doesnt work. Here are some of the studies that prove what I am saying:

https://faculty.haas.berkeley.edu/odean/papers current versions/individual_investor_performance_final.pdf (this study found out that active traders underperformed the market average by 10.3 percent annually).

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2535636 (to summarize the findings of this study, take a look at this direct quote taken from it: “day trading is an industry that consistently and reliably loses money. From an industrial organization perspective, it is difficult to understand how such an industry survives. For people to knowingly day trade, most must either be overconfident about their prospects of success or derive non-financial utility from the activity and knowingly suffer losses as a result.”)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3423101 (this study found out that literally 99% of the day traders LOSE money. It's not even like they have positive but below average results. They literally lose money. 99% of them, statistically).

Clearly short term investing is not the best alternative for you. You should invest for the long term. And if you want to learn how to do it in the best way possible, pay attention to the following paragraphs, because I'm gonna teach you how to actually do it.

First of all, you need to understand what would be an average, a good and a bad stock for you to invest. Take a look at the following graphic:

This is very important for you to understand how to invest in stocks. This is the risk-return graphic, and it is very simple: the higher the risk of a certain stock, the higher the expected returns of that stock tend to be (consider “returns” as the extra money you make from investing in that stock). There is a complex reason behind why that happens, but there is no need for me to go in depth about why this happens. What you need to know is that it is true, this is basic level investing knowledge and there is literally no one in the whole investing industry that disagrees with that. The higher the risk, the higher the return.

Now, take a look at the illustration I made in the graphic (I added a red dot and a blue dot. Consider each of them as a different stock):

Which of these two stocks would you consider the better stock for you to invest in? If you said “the blue one” because it offers higher returns, you are wrong, because even though it offers higher returns, it also has a higher level of risk associated with it, and it's not necessarily better than the red one that has lower levels of risk and lower levels of return. Conservative investors that dont wanna be too risky might choose the red one. Investors that are willing to take some more risk for higher expected returns might choose the blue one. But, objectively, there is no “better” one between these two stocks, because they have the SAME RISK/RETURN RATIO.

Now, take a look at this other example:

Now, in THIS case, the blue stock is objectively better than the red one, as it offers the same levels of return, with a lower risk. This means it has a better risk/return ratio and is an objectively better stock, because by investing in this stock you would generate ALPHA. Alpha, in the stock market, is what we call a better than average risk/return ratio. These would be the stocks that really bring abnormally good results for you as an investor.

This is the type of stocks that professional fund managers (basically the most qualified people in the world to select stocks to invest in) try to find, and they do that by searching for UNDERPRICED stocks (stocks that have a price that is too low compared to the price they should have), as, in theory, an underpriced stock would have a better risk/return ratio. And there are a lot of techniques they use to find these underpriced stocks. These techniques are called valuation techniques.

There is one problem though… The data shows us that… They can't do it.

Think about it: Fund managers, when looking for underpriced stocks, tend to invest in stocks that have a lower price (obviously), and stocks with lower price (as known as value stocks) are usually associated with higher levels of risk (you are going to understand why that happens later in this thread). So, if they were being successful in finding the underpriced stocks (and generating alpha), their returns should be exceptionally higher than the stock market average, right? Well… That does not happen, and i’ll show you a study that proves that:

The study in question is called “SPIVA”, and it is directed by Standard & Poor’s (S&P) which is the same company responsible for creating the american stock market’s index. They analyzed the performance of actively managed investing funds in stock markets all over the world for more than 15 years, and the findings are surprising:

They found that, after 15 years, nearly 90% of the investing funds UNDERPERFORMED the market (had a lower than average return). Here is the part of the study that comes to this conclusion:

This is the US part of the study. But they also analyzed latin america, europe, asia, africa and australia, and the results are similar for every region of the world. Fund managers are the most intellectually capable professionals to try to do it, yet they still can't outperform the market average. here is the link to this research: https://www.spglobal.com/spdji/en/research-insights/spiva/

And what do these results mean? They mean that it's not possible to find “underpriced” stocks, because if it was possible, investing fund managers would be able to find them and outperform the stock market. But they can't. Which means that you cannot generate alpha (having higher returns with lower levels of risk) in the stock market.

This happens because of the Efficient Market Hypothesis (EMH), a investing hypothesis created by Eugene Fama (this guy won a Nobel Prize in economic sciences and is among the greatest investing geniuses to ever live by the way). I am not gonna explain everything about this hypothesis as y'all don't necessarily need to know everything about it, and also this thread would get too complex if I included that here, but I can make a thread about that in the future if yall want.

“Ok, 90% of professional investing fund managers couldnt outperform the market average… But what about the 10% of these professionals that could outperform the market?” The following study analyzed these fund performances, and concluded that they did not generate alpha, and that they outperformed the market because of pure luck. This is a very reasonable conclusion, since the evidence shows us that the vast majority of professionals that outperformed the market during a 10 year period tend to underperform it in the 10 years following this "lucky" period they have. If it was because they are skilled managers, they would be able to keep doing it consistently for various decades. But thats not the case. This study is linked down below:

On Persistence in Mutual Fund Performance on JSTOR

Mark M. Carhart, On Persistence in Mutual Fund Performance, The Journal of Finance, Vol. 52, No. 1 (Mar., 1997), pp. 57-82

www.jstor.org

Even WARREN BUFFETT, which is widely known as the GREATEST INVESTOR OF ALL TIME, cannot significantly outperform the market average in today’s age. Look at this graphic comparing his company’s (Berkshire Hathaway) performance to the american market’s average (S&P500):

He used to outperform the market by a large margin from 1970 - 1998, thats why he is regarded as the greatest. But his performance, since 1999, has been very similar to the average.

So you might be thinking: “Well… If not even the best professional investors in the world can beat the stock market average, then what should I do?”, right? Well, fortunately, there is a pretty simple solution to that, and it's called “Passive investing"

PASSIVE INVESTING

Passive investing basically consists of investing in ETF's.

ETF stands for “Exchange-traded fund”, and its basically a fund that is negotiated in the stock market, and that, generally, invests in the same stocks that make the market index (index = a group of stocks that represent the whole stock market), thus copying the stock market’s performance. It's a passive investing fund, as it doesnt have a manager trying to "FiNd UnDeRpRiCeD sToCkS". It literally just copies the index. And do you remember how 90% of professional fund managers can’t beat the market index? That means by investing in one of these "ETFs", your performance would be better than 90% of investing managers, and even Warren Buffett, the greatest investor of all time, wouldn't be able to outperform you by a significant margin. Sounds good, doesn't it?

For investing in these ETFs, I recommend opening a brokerage account on an american broker, so that you have access to the american stock market. I am not gonna teach you how to do it because you can easily find that type of information on the internet. It's a simple process and will take you like 20 minutes. You should do it because the American stock market has way more ETF options than any other country’s stock market.

In the american stock market, you will have access to global ETFs (ETFs that copy the global stock market index), and this is great, because globally diversifying your investing portfolio is a very rational decision. Take Japan's stock market index, “Nikkei 225”, as an example: it has literally been “walking sideways” and stuck in the same position for like 30 years. How can you guarantee this won't happen to your country? You can't. But if you invest globally, this won't be a problem, because, when combining all the countries, the global stock market has never had a larger losing period than 6 years. In the long run, it's always positive. ALWAYS.

I will save you some time: The most widely known ETF that copies the global index is called “VT”. Just search up “VT ETF” and you will be able to find all the information about it. It is owned by Vanguard which is among the biggest, most popular and most reliable investing management companies in the world. By investing in it, you will, as proven before, outperform 90% of investing managers. Here is a screenshot I took from VT's performance since 2008 (dont mind the shitty quality of my screenshot, I dont know why its that bad) (also the text on the screenshot is in portuguese because I live in Brazil, just saying that so yall dont get confused lol). You can also find this graphic by just searching up "VT ETF" on google.

View attachment 3087817

See how the price of the ETF literally more than doubled since then. That means that if someone invested 1 million dollars in it in 2008, and never invested more money there, they would have more than 2 million dollars nowadays. And I'll remind you again: The studies I showed you proved that this performance is better than 90% of professional investors. Thats how good it is. And you get it by simply investing in this ETF, without having to analyze "which stock is better than the other" and all that stuff.

But you need to remember how investing works: its not something that makes you rich overnight. Remember: SHORT TERM INVESTING IS BULLSHIT, and I already proved that to you before as well. If you are going to invest in this, you should, each month, separate some money from your salary to put on this ETF. And you should KEEP YOUR MONEY THERE. Do not be selling your ETF shares because “X person said this” or “Y person said that”. Just remember how everyone sold their stocks during the covid pandemic, and how they lost a lot of money doing that.

Its very common for people to see the price of their stocks/ETFs go down during a crisis, become desperate, and sell their shares because they are “scared to lose more money”. But by doing this they are actually missing out on the post-crisis gains. In every single crisis of the history of the world, the stock market dropped, but rapidly came back after that. Look at the world’s stock market index and see how it always comes back up after going down because of a global crisis.

(unfortunately this graphic only goes until 2019 and I couldnt find a graphic that highlights the financial crisis timeline that went past 2019. If you would like to see how this graphic goes after 2019, you can search up on google "MSCI World Index graphic" and go to "images").

So, dont be desperate. Do not sell your ETF shares. Keep holding them and buying more month by month. Each year you will have more money invested, until your expected yearly returns of 7% - 10% represent an amount of money that is large enough for you to live off it, and retire from your actual job. How much time this will take depends on how much money you make per month from your job. Investing, when done right, is a way to make you be able to retire earlier, and a way to build your financial empire during your whole lifetime. That's how every legendary investor got rich, and if anyone says something like “Invest in this magic investment for 1 year and you will suddenly become rich”, please dont listen to them, because they are 100% scamming you.

So… As I said, VT is a great ETF option for you to copy the global market index. And, referring to the money you separated to invest in the stock market, if you want to invest everything in VT, that's completely valid, because this is not a “super risky” way to invest, as you will be diversifying your money globally (also, VT has more than 9000 stocks in it, so you are not “putting all of your eggs in one basket”). Plus, remember that by investing in it your performance will be better than 90% of professional fund managers. I am being a bit repetitive on that because its for you to see how great of an investment option it is.

So, if you were to stop reading the thread right now and invested in VT, this would be a great approach to your investments.

But, if you want to get more advanced and boost your returns even more, be welcome to learn how to be a FACTOR INVESTOR. I will teach you how to do it in the next paragraphs so pay close attention.


FACTOR INVESTING

Factor investing consists on investing on stocks that have exposure to some certain "risk factors"

As we saw by the studies mentioned in this thread, it's not possible to generate alpha (higher levels of return with low levels of risk). If you want to have a higher performance, you need to take more risks. So, you might be asking yourself: “Does that mean that if we PURPOSEFULLY invest in riskier stocks, we will outperform the stock market index, as the levels of expected returns are always proportionate to the levels of risk that a stock has?”, and the answer to that is: Yes, there is a way to do this. Ladies and gentleman, I present to you the art of FACTOR INVESTING.

Do you remember when I mentioned Eugene Fama? That guy that won the Economic Sciences Nobel Prize? Well, he also dedicated a part of his career as a researcher to find out which types of stocks were riskier than others. And, to find that out, he, along with his research partner Kenneth French, developed several models. (The most famous ones were the "CAPM", the "three factor model" and the "five factor model"). These models were an attempt to try to determine which factors make a stock riskier than the others. And, with the evolution of these models, they have been able to find out several risk factors that make stocks riskier and, consequently, more profitable for the investor in the long term.

The two main factors you need to focus on are: Size and Value.

The size factor works in a way that stocks of smaller companies (in terms of market cap) tend to be riskier than stocks of big cap companies.

The value factor works in a way that value stocks (stocks with a lower price) tend to have higher levels of risk associated with them, when compared to stocks with a higher price.

(There are also other factors such as "profitability", "investment level of the company", "momentum" and "market beta", but these are all either not 100% well accepted by the current researchers we have, or not accessible in the investment options available to average investors).

So, how could we factor invest using the size and value risk factors? The good news is that there are specialized factor investing ETFs that copy indexes that are composed of value stocks and small cap stocks, thus tending to outperform the overall market index, and boost your returns even more. The bad news is that the factor investing industry is relatively new. So far, we only have high quality factor investing ETFs that target the US market, not the global market. But there is still a way for us to take advantage of this, as the US represents roughly 55% of the global stock market. So we can invest 55% of our money in a factor investing ETF that targets the US, and 45% of our money in a total market ETF that targets the rest of the world, excluding the US (yes, there are ETFs that do this).

The US factor investing ETF is called “IJS”. it targets small cap value stocks (stocks of small companies and that have a low stock price, basically investing accordingly to the value and size factors). And The global Ex-US (excluding US) ETF is called “VXUS”

So, here is a quick summary of the routes you can follow:

- If you want to just generically invest on the global stock market, you can put 100% of your money in VT.
- If you want to use factor investing to boost your returns, my suggestion is for you to invest 55% in IJS and 45% in VXUS.
Both of these options are completely valid. I, personally, am a factor investor, but I also know very intelligent people who know a lot about investments that only invest in VT as they prefer a more simplistic approach to investing, which is completely fine as well.

All of these ETFs are available in the American stock market

So, basically I gave you, for free, all the information you need to know to invest better than a professional investing fund manager. Plus I literally gave you the names of the things you should invest in. Most paid investing courses are very expensive and the methods that most of them teach don't come close to this strategy, as this is objectively the best way to invest your money in the stock market according to the data that we currently have.

You are welcome

And, if you want to learn more about investments, I suggest visiting Ben Felix’s youtube channel. As I said before, he is a CFA, which means he has the highest status investing certification in the world, and he is the one who introduced me to this investing strategy. For the most complete education possible, I suggest scrolling down to his first video and, starting from there, watching all of his videos on chronological order. Here is the link to his channel: www.youtube.com/@BenFelixCSI

If yall have any doubts, just send them here in this thread and I’ll try to answer everyone.

(BOTB Worthy?)

Some guys asked me to tag them in this thread so here ya go: @PseudoMaxxer @user123456 @ShawarmaFilth @Tylermax @oppastoppathe2nd​

 

[geenger]

But Im 13, i cant right?

i dont know the details about how old you need to be, sorry