Be the House!

From my 2nd book:

“A movie studio will fund ten movies. A book publisher will fund ten books. In both cases, the producers or publishers often have no idea which one exactly of the ten is going be successful. In fact, they might be lucky if one of the ten is successful. Since they don’t know which one is going be successful, they still have to fund all ten. If nine of those books aren’t successful, well, the publisher is only going to print a small batch to begin with — that equals a small loss. If those movies or books don’t do well, fine. They’re done. The companies cut their losses and get out. However, the movie or book that does really well, the tenth one, pays for the losses from the nine losers. [Trend followers] think of themselves as the publisher, the movie studio, or the casino ‘house.'”

Not everyday talk.

5 thoughts on “Be the House!

  1. Hi,

    Just finished reading the ‘Trend Following’ book. All in all a great, enlightening read. I have one nagging question I keep coming back to though: Does trend following really have an edge during ‘low probability, high impact’ events?

    I find it hard to accept the notion that there would be trends established well before such events occur and those events would only accelerate the course that trend will take, as suggested in the book. I still think trade followers could be on either side of a trade before a huge impact event occurs such as 9/11. I understand that trend followers would be quick to get out of the losing trades and they would have diverse trades to lessen the impact, etc. but again I don’t really understand how trend followers would constantly have an edge in those scenarios. Unless you’re on Taleb’s camp and deliberately bet for those occasions, I don’t see how a regular trend follower benefits under those circumstances. I’d appreciate if anyone can shed some light!

    Cheers!

  2. Jay come on, the market had be in a massive downtrend for more than a year before 9/11. It had been trending down for a year before Oct/Nov 2008 crash. It had been trending down for months before the ’87 crash. You really dont see how trend following would have gotten you on the right side of those “high impact events”?

  3. Take it from those who have traded during these events… it works. Price is the ultimate indicator!

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