May

18

With long-term investors, short-term traders, trend-followers, mean-reversion advocates, and buy-low-sell-high activists all confident their strategy is superior and showing market success, is this evidence that all approaches work together, or does survivorship bias and misplaced confidence masks that no single strategy truly dominates in today’s volatile markets?

I’ve always been fascinated by the fact that there are investors holding forever competing with traders who do the complete exact opposite and usually one says the other person is an idiot and the same is the opposite haha. (The only time I think I’ve heard of someone praising another’s way of working which was totally opposite of his in this business, was the yearly speech of Buffett and Munger claiming Jim Simons and his team were very very smart.)

Steve Ellison responds:

There are different ways to find an edge in the market, so market participants behave differently. A market maker who uses order flow information behaves very differently from a fundamental investor who believes a company has value that is unrecognized, but they may both be very good at what they do. Probably neither person could do the other's job. It's a big reason why I heed Livermore's admonition to neither seek out nor act on tips about the market.

My observation having seen multiple market cycles is that bad news spreads fast and is known quickly, while good news often occurs so diffusely and so quietly that it often doesn't even register as "news". I have as my pinned X post a 54-year chart of the S&P 500 that is annotated with the most prominent bad news for each year. Every one of these events seemed at the time to be a reason for stocks to go down (as did many other things that were only the second or third worst news of the year). I adapted this from a similar chart that Venita Van Caspel published in her 1983 book The Power of Money Dynamics.


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