Time Travelling Idiots

An excerpt from here:

When markets become tumultuous, which is often, lots of people pop up to explain what’s going to happen next. Many of their arguments are highly plausible. Sometimes they’re well written. Occasionally they’re both. Unfortunately, unless physics is completely wrong and time travel is actually possible they’re all engaged in an activity we usually call ‘guessing’.

Although this is often entertaining, spending a lot of time reading this stuff is pretty much a waste of time when it comes to investment. After all, in 1939 markets completely failed to take account of the possibility that Hitler might run amok in Europe despite small hints like the invasions of the Rhineland, Austria and Czechoslovakia. As we saw in Why Markets Crash they didn’t spot the First World War either: so a perfect record when it comes to global conflagrations, then.

Meanwhile, in 1987 stock markets collapsed for reasons no one has yet been able to agree upon, let alone figure out how to predict (see Black Swan Down). In fact, if anything, if you and I can see a crash coming there’s a reasonable chance even the buffoons that run the world’s finances might manage to avoid it.

Although it’d be best not to count on it.

The ultimate tonic to all of these predictions that lead nowhere? The ultimate non-guessing investment strategy? Trend following. Read one of my four books. Tell me where I am wrong. After you do that–tell me how your old way is still better.

Hat tip to @ritholtz for article find.

4 thoughts on “Time Travelling Idiots

  1. and every one of these talking heads on CNBC et al want to tell you what will happen next based on historical precedent, ie fitting the current to some past series of occurrences that the pontificator believes will recycle. and then something happens randomly that affects the system and destroys the prediction. or worse yet, something is happening to affect the prediction and he won’t know until the market moves against him and it finally surfaces. then he will typically give it a reverse-engineered rationalization as to why he was wrong, or better yet, no one will call him on his bad prediction (CNBC) and he will make another one based on the now-evident new information.

  2. …and in case anyone confuses technical analysis with TF…saw a guy the other night who was a terrific technician giving his picks.

    He did all this technical analysis in detail to establish support and trends… and then promptly pulled a pick out of his ass as he attempted to pick a bottom (pun intended!!)

    When they went over his past picks, he was up 5% on two…and down 80% on the third. I looked up the stock he missed and, sure enough, it was an attempt at a bottom pick. The trend was down and he thought it had ended.

    Even technical analysts find it difficult to resist the human temptation to get a bargain.

  3. If you don’t believe in trend following, just take a look at the monthly bar chart (one bar per month) of the S&P500 for the last twenty years. If you can’t make money with multi-year trends, you don’t belong in the market.

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