Quantcast

[A] strong case can be made for the [random walk hypothesis]… This market view is supported by the fact that the vast majority of mutual funds fail to beat the broader market year after year, and history shows us that the ten best-performing funds in any one year will drop to the bottom of the pack in the following two to four years…. Simply put, there is no way to consistently beat the market.

Needless to say, this view of things does not sit well with Wall Street, which preaches that … relying on expertise are the keys to investing (and their business model!)….

[A]lthough the random walk theory paints a strong case against mutual funds, it is not entirely bullet-proof. Investors consistently fall prey to fear, envy, overconfidence, faddism, and other recognizably human imperfections that make markets not only inefficient but predictably inefficient…. If the DOW goes up one week, it is more likely to go up the next week. In the long run all of these moves smooth themselves out, but in the short run, predicting and trading these constant adjustments can actually make for quite a profitable proposition.

Agustin Silvani, Beat the Forex Dealer

What I’m hearing–not for the first time by a trader writing a book–is the implication that the way to consistently make money as a trader is to make the market more efficient, more stable.

If I were running a company based on this asset, I would be thanking the trader who stabilized my business decision. Is that what happens when these guys run longs and shorts all year long?

(Source: amazon.com)

3 notes

  1. isomorphismes posted this