Saturday, June 18, 2011

Follow theTrend mantra, but watch the street signs

In the efficient-market hypothesis (EMH) there is an assumption that all the smart investors will know what to buy or sell, so the retail investors should just follow them.

If you could ask a trading legend any question what would it be? Can I drive your Ferrari? No? What is the "Holy Grail"? Why are the people doing what they are doing?...... If someone like me were lucky enough to be able to approach a legend, I would not waste his time with unanswerable questions. I would look for ways that would help him, as well as help myself in my trading.

Watch out for the stop signs!
If you viewed research as a Google Maps web mapping application you could visualize it as starting off with a view of the whole world. The "follow the trend" mantra would give you a road map of the local  neighborhoods. Look around for a different prospective and read articles from different fields. The leading gurus would narrow it down to the right "street view" level;  But you have to observe which way the street signs are pointing.

1 comment:

  1. so, that's macro to micro... what about micro to macro? When I look for ideas (okay, a leading guru I'm not) (I start with promising little companies, and then look at their peers, see what constitutes their industry, see what other ideas appear in that industry, and then, a la Geoffrey Moore's "Gorilla Game", focus on a small pool of the best companies in that industry, and narrow the field as results pour in Q over Q. In a micro view, macro trends don't always play a hand - they may control overall access to funds, but micro can move quickly and without interaction with macro.