This correction-type thingy...

grey_gym_sock

being featured in a book about 'market wizards' is not proper evidence. i'm looking for evidence that somebody can beat a suitable index/benchmark through skill. the relevant place to start is with hard data about these ppl's trading/investment performance, not with soft info like what they say about it. if you can work out what a suitable index is (not always easy!), that will tell us whether they've outperformed. then you have to work out whether it's through skill or luck.

the latter is very difficult to do, because there are so many ppl trying to make money through trading, that some are bound to get lucky. e.g. i have a monkey that called the toss of a coin correctly 20 times in a row. the odds of that happening (assuming no skill) are a million to 1. so the monkey must be skilled, right? BTW, did i tell you that i had a million other monkeys trying, and this is the only 1 who succeeded? well, trading is a bit like that.

slightly more realistically: of course, nobody can always be right. but traders who are right (say) 55% of the time can make money. so what are the chances of a trader being that successful, over thousands of trades? again, there are many thousands of traders trying. do more succeed that 1 would predict on the hypothesis that it is all luck? to answer this, we would need statistics on trades and their outcomes from all trades made by (for instance) traders working for banks. clearly, we don't have this info. and if we had it, we would have to allow that there is doubtless a certain amount of insider trading going on, so some profits should be attributed to that, rather than to skill.

for some traders, a successful career path may involve moving out of trading into management (before their luck runs out). i don't know whether that fits any from the book.

on suitable benchmarks: a crude approach is that, if you're investing approach involves buying shares from the FTSE 100, then you're benchmarked against the FTSE 100. this can't be applied when an investment strategy doesn't involve buying securities from any index e.g. forex trading. the underlying point is supposed to be: how high is your return, for the level of risk you're taking on? if you can get higher returns that one would expect, for a given level of risk, then you're adding some value. that is difficult to assess, given that risk is not measurable (volatility is measurable, but it varies over time, and anyway isn't quite the same thing as risk).

there is certainly some evidence that bank traders take on excessive risk, from the observation that every so often 1 reports a huge loss from trading, more than many years' profits. if you are a trader at a bank, and can come up with a strategy that will make make excellent profits in 9 out of 10 years, but in the 10th year there will be losses which wipe out the other 9 years' profits, then you are not a skilled trader (at least as i've defined it), but you will probably have a successful career in trading - not if the losses happen to come in year 1, because then you'll be sacked staight away. but if you're sacked in year N, you still keep the bonuses paid from your share of the profits in years 1 to N-1. and of course, if you'd decided to go for a cautious strategy, and so had moderate returns in year 1, you'd have been sacked then anyway. (can you imagine a new trader saying: you asked us to be aggressive, so i'm putting all the money you let me trade with in vanguard lifestrategy 100. i'll be back in a year to collect my bonus.)

Pincher

TrustyOven wrote: »

So in the news it's reported that China will allow pension funds to invest in the domestic stock market. Apparently this is to try to stop the share prices falling, or something.

This seems like a bad idea? Does this mean they are going to make the correction even bigger if their plans fail to materialise and they've now invested up to 30% of the pension into the market that is falling down?

I've probably misunderstood it all though.

I assume the same bunch of guys who horded garlic and drove up the global price of garlic is at it again. When George Soros shorted sterling, he gets away with a billion. It depends on how well these people are connected, to determine whether they get away with it scot free, or end up in front of a firing squad. Spread the wealth enough, you can get away with anything, sadly.

Pension fund? You can't have a pot of money that big without somebody siphoning it off. It's not just Robert Maxwell. If we actually had a state pension pot, Gordon Brown would have spent it six years ago, bailing out some banks.
And buying Greek debt, because it's "the right thing to do"!?

When they audit the books, they would find a pile of IOUs from a whole gamut of ex-Chancellors, only we call it Gilts.

Damage

grey_gym_sock wrote: »

being featured in a book about 'market wizards' is not proper evidence. i'm looking for evidence that somebody can beat a suitable index/benchmark through skill. the relevant place to start is with hard data about these ppl's trading/investment performance, not with soft info like what they say about it. if you can work out what a suitable index is (not always easy!), that will tell us whether they've outperformed. then you have to work out whether it's through skill or luck.

the latter is very difficult to do, because there are so many ppl trying to make money through trading, that some are bound to get lucky. e.g. i have a monkey that called the toss of a coin correctly 20 times in a row. the odds of that happening (assuming no skill) are a million to 1. so the monkey must be skilled, right? BTW, did i tell you that i had a million other monkeys trying, and this is the only 1 who succeeded? well, trading is a bit like that.

slightly more realistically: of course, nobody can always be right. but traders who are right (say) 55% of the time can make money. so what are the chances of a trader being that successful, over thousands of trades? again, there are many thousands of traders trying. do more succeed that 1 would predict on the hypothesis that it is all luck? to answer this, we would need statistics on trades and their outcomes from all trades made by (for instance) traders working for banks. clearly, we don't have this info. and if we had it, we would have to allow that there is doubtless a certain amount of insider trading going on, so some profits should be attributed to that, rather than to skill.

for some traders, a successful career path may involve moving out of trading into management (before their luck runs out). i don't know whether that fits any from the book.

on suitable benchmarks: a crude approach is that, if you're investing approach involves buying shares from the FTSE 100, then you're benchmarked against the FTSE 100. this can't be applied when an investment strategy doesn't involve buying securities from any index e.g. forex trading. the underlying point is supposed to be: how high is your return, for the level of risk you're taking on? if you can get higher returns that one would expect, for a given level of risk, then you're adding some value. that is difficult to assess, given that risk is not measurable (volatility is measurable, but it varies over time, and anyway isn't quite the same thing as risk).

there is certainly some evidence that bank traders take on excessive risk, from the observation that every so often 1 reports a huge loss from trading, more than many years' profits. if you are a trader at a bank, and can come up with a strategy that will make make excellent profits in 9 out of 10 years, but in the 10th year there will be losses which wipe out the other 9 years' profits, then you are not a skilled trader (at least as i've defined it), but you will probably have a successful career in trading - not if the losses happen to come in year 1, because then you'll be sacked staight away. but if you're sacked in year N, you still keep the bonuses paid from your share of the profits in years 1 to N-1. and of course, if you'd decided to go for a cautious strategy, and so had moderate returns in year 1, you'd have been sacked then anyway. (can you imagine a new trader saying: you asked us to be aggressive, so i'm putting all the money you let me trade with in vanguard lifestrategy 100. i'll be back in a year to collect my bonus.)

I'm quite happy that the contents of the book constitute suitable evidence to support an argument that people exist who can beat the market on a regular basis. I'm not sure if you have read it, or any of the other similar publications, but I think that the apparent absence of any accounts that refute its contents is rather compelling.

I suggest that this prominent publication has long been a prime candidate for potentially being torn to shreds by the 'random walk' supporters in this much-contested area of debate. With not a peep from the 'opposition' concerning this book in both its versions over a period of twenty-six years leads me to believe that its contents bear scrutiny. Perhaps I am wrong, but that is how things currently appear to me.

My position is that I'm inclined to believe it, for the reasons given above, but I haven't evaluated it in any depth further than the contents of the book itself. However, I do believe that many others with various agendas have scrutinized it to the nth degree, such is the nature of its contents, and I trust that any doubts would have been exposed to a suitably high level. I'm happy to be proven wrong though. If you can evaluate it and refute its contents convincingly then I would be happy to acknowledge that, and it will probably change my beliefs as a result.

Regarding your point about percentage of times being right, I don't think this is a suitable measure of success, rather that it is the overall profitability that determines the level of success. Therefore it isn't necessarily dependent upon a positive-looking percentage level, as in your 55% example. According to what I have read, a market-beating trader can trade with a system that is 'right' considerably less than 50% of the time because part of the skills that these people have is to be consistent in identifying and getting out of losing trades quickly - something that a majority of traders are apparently unable to do.

The book is a really good read though if you haven't seen it. The points you raise about successful years versus bad years are well documented in the various interviews, and although not perfect, these 'market wizards' have been successful enough to warrant inclusion.

colsten

Damage wrote: »

I'm quite happy that the contents of the book constitute suitable evidence to support an argument that people exist who can beat the market on a regular basis.

Can you name the people? How is "beating the market on a regular basis" defined?

nrsql

Did someone mention 5000?

mike88

nrsql wrote: »

Did someone mention 5000?

Today we touched the 5000's but seemingly 6000 is the resistance level but for how long is anybody's guess.

TheTracker

Damage wrote: »

I'm quite happy that the contents of the book constitute suitable evidence to support an argument that people exist who can beat the market on a regular basis.

I suspect you are confusing "have beaten" with "can beat". I would say that the vast majority of those who have beaten the market have done so through simple statistical distribution ie randomness in a billion monkeys. If there are some who can do it, its nigh on impossible to extricate those who have done it through skill vs randomness and so its pointless trying to track those managers.

talexuser

Damage wrote: »

You received five 'thank yous' on your post for completely missing my point. Well done!

Thank you, but I don't think we're the ones missing the point, which has been well put in Tracker's contribution above.

InvestInPoker

A_Flock_Of_Sheep wrote: »

I have no investments at all at the moment and have just seen that the markets have taken a bit of a tumble and thought - ahhh I bet there is a crash-esque thread on MSE. Lo and behold. Here it is....

Funny I just logged on and saw there was a crash thread and thought to myself ahhh I bet Flock of Sheep is in there trolling it. Lo and behold...

InvestInPoker

TheTracker wrote: »

I suspect you are confusing "have beaten" with "can beat". I would say that the vast majority of those who have beaten the market have done so through simple statistical distribution ie randomness in a billion monkeys. If there are some who can do it, its nigh on impossible to extricate those who have done it through skill vs randomness and so its pointless trying to track those managers.

Seems a bit weird that this thread turned into a "can active managers beat the market through skill" argument.

In my opinion the truth is you are right the vast majority of the time TheTracker. However I would argue anyone who CANT see Neil Woodford/Warren Buffet have beaten the markets long term through skill and not luck is blind and refusing to acknowledge the truth.

The outperformance from that over the long term is extremely valuable to your financial well being at the end of your investment length thanks to compounding. However I would never place my money in the vast majority of active funds.