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Gloom, Doom and Record Books, by Victor Niederhoffer
What an orgy of bad news there was last week, with Gross and Roach out of the closet and stocks having their worst first week in the new year since ‘91 and doubtless the Almanacarian out in seasonal heaven pointing out that the January effect is looking bad (especially not taking account of the part-whole fallacy and adjusting for the lame duck fallacy and using the Dow versus the S&P and leaving out the last few years), et al. Even Abelson and his friends must have felt righteous and glorious for the first time in a few months.
Rather than looking at the news myself, I retire in such times to the National Enquirer, which always has some juicy health-enhancing material as well as the latest on OJ's imminent arrest and Scott's treatment and great costumes for the daughters, or the daily record of prices one has been keeping for the last 45 years (as documented on Japanese TV in their helicopter report on my downfall). Such daily record books indicate that regardless of news following price, there have been 69 weeks in the last six years when the S&P price fell more than 20 points. The news followers in those days gave the scholarly ones a spot of a 1/2 % or so.
Steve B. comments: The news does follow price because that is what people want to hear. However, at a certain point there is the possibility that it may create more selling. Are people influenced by news? At a certain point we are all affected by news; why else do we watch it? When the news is in agreement with us, it makes us feel good and confirm our positions.
Mr. E comments: The world’s finest newspaper is the National Enquirer, which I respectfully call "the modern Bible, never to be criticized or contradicted.”
Janice Dorn comments: Unless one is the type of trader who is able to profit consistently from news-related volatility (and you know who you are), one is advised to ignore all news. If one can't handle the volatility, one may want to reassess one's reasons for trading.
There is already a plethora of cacophony in the markets, exacerbated by the constant pinging/clanging of news services (including newsbots in many trading rooms), the mindless chatter of CNBC and the visual and auditory barrage that accompanies the trading day. There is simply way too much information, in my humble opinion.
If one plans a trade and trades the plan (not an original idea, by the way) one knows that price is the final arbiter. Good trades are in equities that are going up in price (if you are long) or going down in price( if you are short). Price is omniscient, omnipotent and omnipresent. Price knows and tells everything.
All the rest of the clamor is, unfortunately, in large part, fodder for the epinephrine-driven and addictive aspects of trading.
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