Prediction is a Futile Exercise
I have written often about the so-called market guru’s and those that parade around as experts on CNBC, the print media or selected blogs. Pounding the table buy this or buy that! Now! No names but you can think of quite a few, can’t you. I wonder if the ‘link farms‘ on the Internet are not just an extension of the parade of experts.
Isn’t it amazing that those who have managed money, extremely successfully so I might add, are not writing the articles you see all over financial media? Why is that? Is it because they are not members of the ‘authors about financial markets club‘?
One such super successful trader is John Henry of John W. Henry & Company and owner of the Boston Red Sox. Isn’t this the type of person you should be reading about, even attempting to emulate?
I was reminded of John Henry this week in an article by Bret Arends at Marketwatch ‘Sox beat Yanks‘. Hailing from New England articles about the Red Sox and/or the Yankees always spur interest and controversy. That however is another article for another day.
John W. Henry long ago earned his fortune — and a reputation as one of the nation’s premier players in the global futures markets. But in 2004, Henry may have achieved immortality by leading the Boston Red Sox to their first World Championship since 1918, reversing the most fabled curse in sports. This triumph was due to more than the inspired play of a team that rallied from 0-3 in the American League Championship Series to beat the New York Yankees. Bloomberg/Business Week January 10, 2005.
“I don’t believe that I am the only person who cannot predict future prices. No one consistently can predict anything, especially investors. Prices, not investors, predict the future. Despite this, investors hope or believe that they can predict the future, or someone else can. A lot of them look to you to predict what the next macroeconomic cycle will be. We rely on the fact that other investors are convinced that they can predict the future, and I believe that’s where our profits come from. I believe it’s that simple”
“…when I was designing what turned out to be a trend following system…[that] approach – a mechanical and mathematical system – has not really changed at all. Yet the system continues to be successful today, even though there has been virtually no change to it over the last 18 years.” John Henry - Trend Following by Michael Covel
“If one theme summarizes Henry’s philosophy, it is the knowledge that one cannot predict anything. Henry is a long-term follower. His philosophy is based on the premise that market prices, rather than market fundamentals, are the key aggregation of information needed to make investment decisions. He says, The markets are people’s expectations, and these expectations manifest themselves as price trends. We live in an uncertain world. One cannot predict the future of anything. In an uncertain world, identifying and following trends may be the only reasonable investment approach over the long term. Henry feels that a mechanical approach has more value since no scientific approach or solid testing can be applied to discretionary trading. Henry says that when he first researched the markets in the 1970s, he was looking for a methodology that would work through many market conditions. His research showed that long-term approaches work best over decades. There is an overwhelming desire to act in the face of adverse market moves. Usually it is termed ‘avoiding volatility’ with the assumption that volatility is bad. However, I found avoiding volatility really inhibits the ability to stay with the long-term trend. The desire to have close stops to preserve open trade equity has tremendous costs over decades. Long-term systems do not avoid volatility, they patiently sit through it. This reduces the occurrence of being forced out of a position that is in the middle of a long-term major move. John Henry The Complete Turtle Trader
In this authors humble opinion Trading is Not about being right or wrong! Trading is about managing money! I have personally seen the ego of I’m right and the markets wrong be the undoing of many an otherwise good trader. How many of these so-called ‘experts’ are convincing you to stay when you should go or vice versa? Something to ponder this weekend!