I think I agree with this point and I’m glad you raised it—you might non-trivially beat the market every once in a while, but not all the time. To be clear, I don’t think of the EMH as an on/off switch, and if the post gives that impression, that’s my bad. In fact, the most successful investors I know of wait, wait, wait, and then very occasionally load up when they see a major asymmetry.
But I do still have a couple of reservations. The first is that this would still show up in the evidential standards I’ve suggested? If you match the market most of the time, but every five years you beat it, you’re eventually gonna have a pretty amazing track record, especially as you compound early successes. Note this is more or less the same frequency offered by some anomalies—for example, the momentum strategy I experimented with only outperforms during downturns, but ends up with a super impressive CAGR.
The second question is, how confident are you (‘you’ in the general sense, but also ‘you’ Vaniver if you feel inclined to answer) that knowing the difference between the edge trades and the others actually helps? If it’s a very strong feeling, why trade on all the other occasions when you know you’re guessing?
I think it’s interesting in an academic sense that these edge trades might really exist, but if they still ultimately result in an unexceptional record because of all the usual human foibles, I’m not sure how it practically justifies the suggestion that anyone should do more of this sort of thing?
Each of the ‘edge’ investments has also had another side to it, and the other side didn’t have the same feeling to guide me. For example, I correctly timed BP’s bottom during the Deepwater Horizon crisis, but then when it recovered my decision of when to sell it was essentially random. I think most of the people who predicted COVID a week early were then not able to outperform the market on the other side, and various things that I’ve seen people say about why they expect a continued edge seemed wrong to me.
This is a super important point too. Any investor who is long the stockmarket on a long horizon ultimately has to get back in, which means they have to time the market twice. Personally, I was gobsmacked by the speed of the recovery (or the height of the dead cat bounce, if that’s what it is). April was the stock market’s best month in 30 years, which is not really what you expect during a global pandemic.
Right, April’s rally wasn’t due to “actually, everything is great now”, it was due to “whew, it looks like the most apocalyptic scenarios we were seeing in March aren’t likely, and there’s a limit to how bad it’s going to get”.
I think I agree with this point and I’m glad you raised it—you might non-trivially beat the market every once in a while, but not all the time. To be clear, I don’t think of the EMH as an on/off switch, and if the post gives that impression, that’s my bad. In fact, the most successful investors I know of wait, wait, wait, and then very occasionally load up when they see a major asymmetry.
But I do still have a couple of reservations. The first is that this would still show up in the evidential standards I’ve suggested? If you match the market most of the time, but every five years you beat it, you’re eventually gonna have a pretty amazing track record, especially as you compound early successes. Note this is more or less the same frequency offered by some anomalies—for example, the momentum strategy I experimented with only outperforms during downturns, but ends up with a super impressive CAGR.
The second question is, how confident are you (‘you’ in the general sense, but also ‘you’ Vaniver if you feel inclined to answer) that knowing the difference between the edge trades and the others actually helps? If it’s a very strong feeling, why trade on all the other occasions when you know you’re guessing?
I think it’s interesting in an academic sense that these edge trades might really exist, but if they still ultimately result in an unexceptional record because of all the usual human foibles, I’m not sure how it practically justifies the suggestion that anyone should do more of this sort of thing?
This is a super important point too. Any investor who is long the stockmarket on a long horizon ultimately has to get back in, which means they have to time the market twice. Personally, I was gobsmacked by the speed of the recovery (or the height of the dead cat bounce, if that’s what it is). April was the stock market’s best month in 30 years, which is not really what you expect during a global pandemic.
Historically the biggest short-term gains have been disproportionately amidst or immediately following bear markets, when volatility is highest.
Right, April’s rally wasn’t due to “actually, everything is great now”, it was due to “whew, it looks like the most apocalyptic scenarios we were seeing in March aren’t likely, and there’s a limit to how bad it’s going to get”.