Tuesday, 17 June 2014

Innocents To The Slaughter

Prabhat had a few more comments on my market index post and follow-up, but continues to read too much into my thoughts.

I agree that I over-extrapolated from your post, apologies for that.
That said, I didn't speak of 'beating the market' either, in fact I don't believe in comparing performances to indexes either. Nonetheless, your approach has a huge embedded assumption that what has been historically true will continue. There's little guarantee of that, and plenty of reason to be suspicious of such reasoning.
Not actually true, for Prabhat did speak of 'beating the market', even if it was in the form of a quote:
Sorry for the rant, but I detest this defeatist, mediocre nonsense about financial markets being efficient and 'no one can beat the market, don't even try'.
He continues:
I don't at all contend that most hedge funds are poor, but as a saying goes, '90% of everything is crap'. I am not at all surprised that the average fund is bad, a) because they are average, and rarely will the average anything have an exceptional record and b) because due to the volumes they manage (2% really adds up), they all adopt very similar, risk-averse styles which will make the owners rich even if not the investors to the fund.
No one, certainly not me, said that most hedge funds were poor, nor did I say that the average fund is bad.  
I am still not sure why you are so skeptical that some people analyze things better than others, and that whether it be sports-betting or not, some of the better analysts are not working for big companies. Surely you don't think quality of analysis is solely dependent on quantity of investment in said analysis? I am not even going into the group-think, social dynamics, career considerations etc that ensure that funds don't make optimal decisions.
Again, I'm not sure where this comment comes from. Of course some people analyze things better than others. The point I was trying to make, apparently not too clearly, was that when it comes to the financial markets, that 'better analyst' is not going to be me. It could be Prabhat, but I doubt it. The fact is that the data you need for financial analysis is old by the time it reaches most of us. The market has already digested it.

Sports analysis offers much more hope. Not only do games take place in front of our eyes, live (or close to live), but the resources an individual is up against are far fewer and more modest, although still formidable. Being consistently profitable from betting is not easy, at least not for me, but it is doable with a combination of knowing your sport, knowing the markets and plenty of patience.

I've started reading the "Game Set and Ca$h" book which arrived last week, although there's a football tournament that is taking up much of my free time. I'll probably have a few things to say about it in the next few days, but what is apparent early on is the resources that in-play tennis traders are up against. With the sums of money being taken out of these markets, there are either some deep pockets around or an endless supply of innocents on their way to the slaughter.

Funny how the decline in draws I wrote about in the top leagues last season seems to have continued into the World Cup. Just the one so far, which is very unusual in the opening round of group matches, but a result of the high number of goals we've seen - 44 so far, an average per game of 3.14.

By comparison, in the four previous World Cups (since 1998) with the same format as this one, the opening group games averaged 2.3 goals per game, and 28.1% of matches ended as draws. If the pattern of previous World Cups continues, the second round will see even more goals, with yet more in the third round before defences tighten for the single-elimination part of the tournament. 

1 comment:

Prabhat said...

By 'bad' I simply meant your reference to the fact that most hedge-funds under-perform the passive investing alternative.

As far as better analysis is concerned, what I mean is that some people will be better at analyzing data at the end-of the day than others. True, some financial data will reach big players before others and thus be 'old', but unless those big players are analyzing it perfectly, the fact that they get data in advance isn't going to result in the market automatically 'digesting it'. As for high-frequency trading, that can't really be called analysis in any sense, and while it highly complicates, if not kills, day-trading, I don't understand why someone with a longer time-frame and good analysis skills would be incapable of doing well.