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!
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?
Better to just buy mutual funds and leave the money alone
I am a couch, apparently. I don’t recall ever having sold anything I bought.
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
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
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.
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.
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.
That’s all well and good, but the experiment was done during a time unlike any other in market history with the idiotic growth levels that’s been going on. Try it during most of the past 100 years when the market crashed for ran flat for years on end.
It picks a random stock from a random year to track over a 2 year period.
It picked two random years in the past.
You’ve been added to the Best of Lemmy: https://sh.itjust.works/post/65897371
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.
time in the market beats timing the market
The Stock Market Always Wins
Time to invest in a couch 🛋️
JD that you?
![[OC] People tried to beat the stock market 100K+ times in a simulation. They lost, a lot.](https://europe.pub/api/v3/image_proxy?url=https%3A%2F%2Flemmy.world%2Fpictrs%2Fimage%2F4f3baec5-843f-4b8a-b46d-e7b0237dc72f.png){kind=link}