Skip to content
  • About
  • Contact
  • Contribute
  • Book
  • Careers
  • Podcast
  • Recommended
  • Speaking
  • All
  • Physician
  • Practice
  • Policy
  • Finance
  • Conditions
  • .edu
  • Patient
  • Meds
  • Tech
  • Social
  • Video
    • All
    • Physician
    • Practice
    • Policy
    • Finance
    • Conditions
    • .edu
    • Patient
    • Meds
    • Tech
    • Social
    • Video
    • About
    • Contact
    • Contribute
    • Book
    • Careers
    • Podcast
    • Recommended
    • Speaking

Investing in the stock market is like playing that game of rock-paper-scissors

Wall Street Physician, MD
Finance
January 11, 2019
Share
Tweet
Share

Rock-paper-scissors is a game that nearly all of us played as children.

It is a game with incredible opportunities to play mind games with your opponent.

There is no luck in rock-paper-scissors as with card games.

The game does not have complex rules like chess.

You simply have to figure out the patterns of your opponent (or induce patterns into them) and take advantage accordingly.

Can you beat the New York Times computer bot?

Back in 2011, the New York Times created a rock-paper-scissors playing computer bot. While the game may seem like simply a game of chance, it is very difficult to outsmart the computer. In fact, every time it seems like you detect a pattern in the computer’s moves, the computer is actually figuring you out and slowly beating you.

I remember losing to the bot by quite a wide margin when I played against it when it first came out in 2011. I’m convinced that I was not unlucky against the computer.  I believe the computer had detected patterns in my moves, even as I was trying to either decipher a pattern in the computer’s moves or induce the bot to make a predictable move.

The more I tried to “trick” the computer into playing scissors when I was about to play rock, the more likely the computer knew that I was going to do this and play paper instead. It’s remarkable how good computers can be at playing one of the purest games of wit and deception.

How to never lose at rock-paper-scissors

It turns out that while it is very, very difficult to devise a strategy or build a bot that can win the game of rock-paper-scissors (or maximize the advantage against suboptimal players), it is just as easy to play the game of rock-paper-scissors in a way that will not lose to anyone, not even the best players or computers in the world.

You simply have to randomly choose between rock, paper, and scissors. If this happens, no matter what strategy your opponent chooses, you will win, lose, and tie exactly 1/3 of the time. As a result, you will never lose to your opponent in the long-run. Of course, you also will never win.

Index investing and rock-paper-scissors

ADVERTISEMENT

Investing in the stock market is like playing that game of rock-paper-scissors. The default strategy is buying the entire investing universe (the total stock market index). Index investing is like randomly choosing between rock, paper, or scissors. It is a strategy that ensures you will never lose to the market. You will always get the market return, no more, no less.

Once you deviate from an index investing approach, you are now using a strategy that you think will beat the market. You may try to do your homework in order to find the next Amazon or Starbucks. You might search for dividend-paying stocks, or technology stocks, or only buy stocks in the spring or winter. At the extreme, you try your hand at trading in and out of stocks, thinking that you can forecast the future of the U.S. economy or read stock charts.

Once you start trying to beat the market, you introduce opportunities to make the errors that erode your returns. These errors can be investing in a tax-inefficient way (e.g., trading in taxable accounts). It can be spending long stretches of time out of the stock market in a futile attempt at market timing. It can be investing in a high-cost actively-managed mutual fund, a usually futile attempt to find someone who can beat the market.

Conclusion

A buy-and-hold index fund investing strategy is the simple strategy that ensures you will achieve the market return. It’s like randomly choosing between rock, paper, or scissors. Since winning the investing game is mostly about not losing, index funds have been the key to success for many, many investors.

“Wall Street Physician,” a former Wall Street derivatives trader , is a physician who blogs at his self-titled site, the Wall Street Physician.

Image credit: Shutterstock.com

Prev

A financial checklist for the pregnant woman physician

January 11, 2019 Kevin 0
…
Next

MKSAP: 55-year-old man with mild nausea and dyspepsia

January 12, 2019 Kevin 0
…

Tagged as: Practice Management

Post navigation

< Previous Post
A financial checklist for the pregnant woman physician
Next Post >
MKSAP: 55-year-old man with mild nausea and dyspepsia

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

More by Wall Street Physician, MD

  • 4 reasons why physicians should hire a financial advisor

    Wall Street Physician, MD
  • 7 sources of financial anxiety for physicians

    Wall Street Physician, MD
  • Is it still worth it to go to medical school?

    Wall Street Physician, MD

Related Posts

  • Physicians who don’t play the social media game may be left behind

    Xrayvsn, MD
  • Market-based approaches solving the opioid epidemic

    Julie Craig, MD
  • Black market pharmaceuticals target immigrants

    John M. Glionna
  • The problem with the free market in health care

    Roy Benaroch, MD
  • What matters in an optimal consumer health care market

    Richard Reece, MD
  • Physicians and patients are now pawns in a political game

    Nicole M. King, MD

More in Finance

  • The business lesson new doctors must unlearn

    Stanley Liu, MD
  • The hidden impact of denials on health care systems

    Diana Ortiz, JD
  • Why physicians are unlike the “average” investor

    David B. Mandell, JD, MBA
  • Signing bonuses and taxes: What physicians should know

    Shane Tenny, CFP
  • 5 steps to ride out a non-compete without uprooting your family

    Stanley Liu, MD
  • What every physician should know before buying into a medical practice

    Dennis Hursh, Esq
  • Most Popular

  • Past Week

    • 2 hours to decide my future: How the SOAP residency match traps future doctors

      Nicolette V. S. Sewall, MD, MPH | Education
    • Why removing fluoride from water is a public health disaster

      Steven J. Katz, DDS | Conditions
    • When did we start treating our lives like trauma?

      Maureen Gibbons, MD | Physician
    • In a fractured world, Brian Wilson’s message still heals

      Arthur Lazarus, MD, MBA | Physician
    • Why U.S. health care pricing is so confusing—and how to fix it

      Ashish Mandavia, MD | Physician
    • How doctors took back control from hospital executives

      Gene Uzawa Dorio, MD | Physician
  • Past 6 Months

    • Why tracking cognitive load could save doctors and patients

      Hiba Fatima Hamid | Education
    • What the world must learn from the life and death of Hind Rajab

      Saba Qaiser, RN | Conditions
    • The silent toll of ICE raids on U.S. patient care

      Carlin Lockwood | Policy
    • Why shared decision-making in medicine often fails

      M. Bennet Broner, PhD | Conditions
    • My journey from misdiagnosis to living fully with APBD

      Jeff Cooper | Conditions
    • Why we fear being forgotten more than death itself

      Patrick Hudson, MD | Physician
  • Recent Posts

    • Why U.S. health care pricing is so confusing—and how to fix it

      Ashish Mandavia, MD | Physician
    • From survival to sovereignty: What 35 years in the ER taught me about identity, mortality, and redemption

      Kenneth Ro, MD | Physician
    • When doctors forget how to examine: the danger of lost clinical skills

      Mike Stillman, MD | Physician
    • When your dream job becomes a nightmare [PODCAST]

      The Podcast by KevinMD | Podcast
    • Finding healing in narrative medicine: When words replace silence

      Michele Luckenbaugh | Conditions
    • Why coaching is not a substitute for psychotherapy

      Maire Daugharty, MD | Conditions

Subscribe to KevinMD and never miss a story!

Get free updates delivered free to your inbox.


Find jobs at
Careers by KevinMD.com

Search thousands of physician, PA, NP, and CRNA jobs now.

Learn more

Leave a Comment

Founded in 2004 by Kevin Pho, MD, KevinMD.com is the web’s leading platform where physicians, advanced practitioners, nurses, medical students, and patients share their insight and tell their stories.

Social

  • Like on Facebook
  • Follow on Twitter
  • Connect on Linkedin
  • Subscribe on Youtube
  • Instagram

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

  • Most Popular

  • Past Week

    • 2 hours to decide my future: How the SOAP residency match traps future doctors

      Nicolette V. S. Sewall, MD, MPH | Education
    • Why removing fluoride from water is a public health disaster

      Steven J. Katz, DDS | Conditions
    • When did we start treating our lives like trauma?

      Maureen Gibbons, MD | Physician
    • In a fractured world, Brian Wilson’s message still heals

      Arthur Lazarus, MD, MBA | Physician
    • Why U.S. health care pricing is so confusing—and how to fix it

      Ashish Mandavia, MD | Physician
    • How doctors took back control from hospital executives

      Gene Uzawa Dorio, MD | Physician
  • Past 6 Months

    • Why tracking cognitive load could save doctors and patients

      Hiba Fatima Hamid | Education
    • What the world must learn from the life and death of Hind Rajab

      Saba Qaiser, RN | Conditions
    • The silent toll of ICE raids on U.S. patient care

      Carlin Lockwood | Policy
    • Why shared decision-making in medicine often fails

      M. Bennet Broner, PhD | Conditions
    • My journey from misdiagnosis to living fully with APBD

      Jeff Cooper | Conditions
    • Why we fear being forgotten more than death itself

      Patrick Hudson, MD | Physician
  • Recent Posts

    • Why U.S. health care pricing is so confusing—and how to fix it

      Ashish Mandavia, MD | Physician
    • From survival to sovereignty: What 35 years in the ER taught me about identity, mortality, and redemption

      Kenneth Ro, MD | Physician
    • When doctors forget how to examine: the danger of lost clinical skills

      Mike Stillman, MD | Physician
    • When your dream job becomes a nightmare [PODCAST]

      The Podcast by KevinMD | Podcast
    • Finding healing in narrative medicine: When words replace silence

      Michele Luckenbaugh | Conditions
    • Why coaching is not a substitute for psychotherapy

      Maire Daugharty, MD | Conditions

MedPage Today Professional

An Everyday Health Property Medpage Today
  • Terms of Use | Disclaimer
  • Privacy Policy
  • DMCA Policy
All Content © KevinMD, LLC
Site by Outthink Group

Leave a Comment

Comments are moderated before they are published. Please read the comment policy.

Loading Comments...