Bob's uncanny stock investment advice But let's get back to our friends that are always telling us about their amazing stock picks making them so much cash. Let's take one of them, Bob who says at an interview at a big Wall Street firm: "I can read the charts, and usually can predict the direction far more often than not." "Congratulations Bob, you're hired!" After all, who wouldn't hire god's gift to the stock market. So since stocks like CSCO are going up and down so often, like every minute, this gives Bob ample opportunity to show his skill. In a minute, CSCO's price might fluctuate by a cent. If he gets it right every time, after 7 hours of trading, he's made about $7\times 60 \times \$ .01$ which is about 4 dollar. That's about a 10% profit in one day. Compound interest says that in about a year (or 200 trading days) this is about $1.1^{200}$ which is more than 100 million increase in profit. They give Bob $10,000 to invest and by the end of the year he's made the firm a trillion dollars. After two years it's 100 million trillion dollars. Way to go Bob! Maybe he'll get that windowed office he's been eying. So clearly Bob is smoking something quite exotic if he thinks he can predict with that level of accuracy. "OK, well I was a bit overly optimistic. I can get whether it goes up about 15 times out of 20". Fine Bob, now it'll take you about 4 years rather than two take make 100 million trillion dollars. The only reasonable thing for Bob to say is more like "I can get the direction of the market right 55 out of 100 times". Or perhaps that's also being excessively optimistic. Then that's more like $1.01^{200}$ which is about a 700% rate of return after a year. If he was doing even 20%, that'd be pretty amazing. The point I'm making is that if Bob can be just barely better than chance, he'll be making obscenely large piles of cash. He certainly isn't going to be able to tell "far more often than not". Therefore the opinion you get from people about being able to tell the direction of the market is, self-delusion. It's very hard to tell the difference between being completely unable to predict, and rarely able to predict, which is what it would be in the most optimistic scenario. Remember here I'm talking about fast buying and selling, not the Warren Buffet style of investing. Clearly stock investment advice on whether to buy a particular stock or not, has to be statistically quite close to random. But still you meet many people that believe that they can reasonably well read a stock market chart and predict the subsequent direction. Right... 2+2=5.