YTD return as of end of July identical...same ups and down movement....we scaled back in August like it's 1992...will we gear up like it too? If so, rest of year looks up...
The pressures of a roboworld can place on an investor are vast. The definitions, or rather directions, of the roles we are expected to play are changing in a dramatic way. Under such light, the question of how one fits in an investment world which does not have room for him is an unavoidable question to have. For how can one be part of the investment world, when the world he is part of sees no value to human input? These questions are especially amplified when even traditional investment advice, will be ruled by roboadvisers. The idea of playing with elements such as historical trends or company valuations or behavioral finance or any other human aspect of investing, to analyze, simulate and predict future price movements will be useless. Soon enough, because of the rapid and uncontrollable evolution of investing, we’ll even have to invent “robocops” to regulate and supervise their own kind. The current developments are so confining it dooms and destines its members to comply with them or suffer because of them. It is quite clear that those who remain true to traditional ways of investing will be losing out because of the absence of any traits of past experiences. Who by the end of it all will find themselves having being forced to change and in turn be changed more by machines than they managed to change the machines. Ultimately, accepting machines for all they are and not caring for all they are not. In conclusion, I equate the effects of this environment with those of a curse, where there will be no antidote to it. In other words, if switching to algorithmic trading, automated analyzing, roboadvising and robocompliance is a conscious choice, and if this development shatters the reality we know to be true only to replace it with a bleaker one, then is continuing to write about human investing experiences worthwhile? I think not. This was my last thought as I sign off from this board for good. After note: and no, I am not drunk as someone here suggested.
Some were in doubt about the potential of a Grexit moving trillions of dollars in markets. I think Friday’s market moves were eye-opening events for all of us. I mean, how can the headline news about a small European country’s total debt which is less than the whole cash pile of Apple company, be the sole factor of all of the markets’ functions?
I don’t know if Greece realizes this and can use it as leverage on the negotiating table, but their fate in the Germanzone, aka Eurozone, impacts markets globally right now.
For all those who are still trying to follow future earnings ratios or CAPEs or the Fed or any other technical, fundamental or policy making aspects, I sympathize with them.
For me, the reality we now have to explore is how markets move based on news about Greece and the input of these headlines into machines. And for how long this notion of garbage in, garbage out, will last…
The relationship between past and present has been something many have contemplated. The past – and all that it signifies – most certainly has a firm grip on the present for it carries the weight of tradition, legacy, and more importantly, memory. But some glorify the past and just dwell in its historical trends. What these forecasters fail to understand is that the past inherently signifies an absence as it holds within it that which is no longer present. Despite this absence, it still creates an odd sense of certainty to the forecasters who by an absence of a strategy of their own, cannot adjust when the historical trends too depart.
This idea of the past weighing in on the present, by relying on the living memory of past events, result in “dead” trends in the present and it actually creates an outcome that is more wrong – an outcome that is followed by a majority and works for some time but it does not negate the fact that the trend followed is the wrong investment approach. For all that computer models indicate, and for all its information, one is left wondering if it can really predict outliers. Because the past might outweigh the present for an extended time period but it will only result in crippling future predictions when an unforeseen event arises.
Moreover, the use of past events is quite telling in answering how precise these hypothetical analyses can be and for how long. It conveys how unresponsive these computer models really are by how readily they evoke the past, without a systematic/selective change in tactics, and how crippling that is for an overall strategy.
Economic health is very much a story of perception. So if it is through our perceptions that we perceive our economy, wouldn’t it be fair to assume that our perceptions would change if our economy does? And if we can agree that the economy has now changed for the better, why are we still so fixated in our pessimistic views? The question of how plausible it is to change these “wonderland” views must be asked. Things most certainly seem as the best possible outcome, it seems that we clearly were rewarded by being given what we wanted the most, a superb metamorphosis landscape of safety and a stable economy. But ultimately our trust of success fades, ironically, our current state is perceived as anything but the best possible outcome. To me, this is a function of the lack of trust factor.
This mistrust in our policies as a nation, often perceived as unethical or against our own public interest. The reasoning behind this is something I have often pondered on. It would appear that every time our nation is being accused of wrong doing, something our gov’t cannot justify, the more negative opinion must overpower our leaders’ explanation. Our leaders are blamed for offering muted and controlled experiences they offer limited or skewed facts. Has it ever crossed their mind that it is plausible our ability to understand is limited to the tools of our understanding? And that at this point, understanding, is far trickier than what the word implies? And to a large extent the side-effects of such understanding can be more harmful to us because to reveal to the world whether our actions keep the citizens of this nation safe is to uncover to our enemies how we achieve it?
The markets are currently in the eye of the storm. We could potentially remain there long enough to see blue skies ahead but I believe this to be short lived, we will eventually be torn apart and will drown in the political storm…
The Alice in Wonderland story relies on metaphorically explaining life as a landscape of illusion. This means that both truth and falsehood are interchangeable. What seems real might in fact be false if the lie becomes the truth, or the truth becomes the lie. The “Wonderland” report released today contemplates just that, what is real and what is not through the very unpredictability (as they perceive it) of the economic landscape. What this large financial institution is really relying on is to overturn the reader’s sentiment in questioning the legitimacy of the real in favor of the false. No matter how truthful they are in conveying it to others, so as their truth can convince and overpower someone else’s, the reality still remains that the price action of the stock market in the past few weeks has proven them wrong. The larger a financial institution is or the more subscribers the newsletter has, the more likely it is their market timed based analysis will fail (the GPS analogy).
The mid-sized financial institutions are in a clear advantage here.
The more “followers” you have the more likely it is for your recommendations to get “crowded.” This reality might not fit, neatly, in their illusion of truth or their version of “Wonderland” but the more they publicize their attempts to justify their failure in “Wonderland Markets” the more exposed to total failure they get.
So how do the examples of the HOV and GPS traffic patterns used in my previous post relate to stocks/market timing we experienced in the past few weeks?
My main focus here is not to stress the consequences of the HOV now having equal traffic to other lanes because of the influx of drivers reverting to it but my focus is on the fact that human behavior can be influenced and steered in certain directions that can be predicted, or at times even instigated…
And in a truly Kafkaesque style, the Efficient Market Theorists who speak against market timing are actually assisting predictions that are market timed based, i.e. by virtue of discouraging people to follow the market timing strategies produced, they prevent them from becoming over-crowded....
...and hence by remaining 1.0 HOV lanes they do in fact yield the results market-timing predictions forecast.
To bring the point home in a strong and clear way, when the repetitive perma-bear herd pattern metamorphosizes in a contrarian play is when I start getting worried about stock market price levels...
So often we hear those who speak against market timing in markets. Their reasoning is sound sounding: involving predictions about the stock market equates to predicting human activity, a rather impossible task. It is fascinating to me how so many people concentrate all their efforts in pure mathematical terms to prove this point. No one has been able to time the markets in a systematic way over the long run, they’ll claim. Our best bet is to try to find the stocks that will outperform other stocks.
In my opinion, trying to find the best performing stocks is a good strategy but if it does not also involve a market timing approach, then it is a self-defeating strategy.
I guess the best way to illustrate the predictability of human behavior is by looking at a busy highway, usually consists of four traffic lanes, one of them is an HOV lane. While the HOV lane is often the lane with less traffic, since you need 2 people or more in a vehicle to be on it, after a prolonged period of time many drivers frustrated of being stuck in traffic while seeing the cars in the HOV lane zoom past them will change their behavior. They will decide to car pool. The result of this collective drivers’ behavior is many more cars in the HOV lane than in the regular lanes. After a while this pattern will again reverse itself, this usually repeats itself many times.
The problem with market timing however, lies in this: take for example these new apps that allow us to choose the fastest route to our destination through the live traffic feed. As more and more people start using these devices that predict the fastest route, eventually half way to your destination you’ll realize that the prediction was wrong and it would have actually been wiser to take the opposite of the suggested route.
To this point, those analysts who are against market timing actually help those who do and the less “crowded” this strategy stays the more it negates their claim. A self-cancelling statement