Читать книгу Uncommon Sense - Pape Scott - Страница 10

There is so much information out there. What should we believe? Where do we draw that line separating fact from fiction? It's a pretty important line to draw when investing. Problem is, everyone draws it in a different place. And who's to say you've drawn yours in the right place?

Take 19th-century English economist William Stanley Jevons, who came up with a novel way to predict the business cycle: he linked it to sunspot activity. Jevons wasn't a crackpot. In fact he was a highly respected economist, having presented views on marginal utility theory and the application of mathematical logic to the study of economics – which meant his sunspot idea gained some traction.

While Jevons had observed a loose correlation between sunspots and the business cycle, correlation doesn't prove causation. Bald men are more likely to wear hats, but that doesn't mean hats cause baldness.

But this whole sunspot thing mightn't seem so stupid if you are a ‘Gann trader'. William Gann died back in 1955 but his stock trading techniques are still being used by current-day disciples. They use, among other things, astrology, which means Gann traders are very easy to spot. They're the guys trying to read The Wall Street Journal with one eye while the other is shoved hard against the lens of a telescope.

But Gann wasn't the first trader to look skyward for inspiration. Nearly 500 years ago Christoph Kurz, a commodities trader on the Antwerp Bourse, referred to the stars when forecasting the prices of pepper, ginger, saffron and bills of exchange.⁶

And what about the proposed link between women's hemlines and the stock market? Both the Roaring Twenties and the Swinging Sixties saw hemlines and world stock markets reach new highs. What does that mean? Absolutely nothing. But a correlation between the two was an idea that gained traction with some punters. Pick women's fashion trends before the rest of the market and you could be on a winner. Next we'll have stock insiders working at Yves Saint Laurent and Giorgio Armani trying to get the inside running!

Now we've got some momentum up, let's stretch the limits of reason even further.

In 2009 controversial Austrian entrepreneur, artist and ex-trader Michael Marcovici tried to sell the concept of ‘rat traders'. He claimed he could breed and train rats to trade financial securities. He offered these rats for sale to wealthy investors, hedge fund managers, brokerage houses and banks. On his webpage he claimed to have filled orders of up to 1000 rats for trading floors in large financial institutions.

Unlike Colonel Sanders, who kept his 11 herbs and spices a secret, Marcovici told all on how he trained his rodents. So if you don't want to shell out any cash, and would rather train your own rats, here it is.

He reckons he converted historical market price data into 10- to 20-second sound bites referred to as ‘ticker tracks'. These matched the past price movement of the relevant security. As prices went up, so did the pitch of the sound. The ticker tracks would then be played to the rats. Based on what the rats heard, they would execute a buy or sell order. If the rat chose to buy, it would hit a green button positioned inside its box. If it chose to sell, it would hit a red button. Get it right and the rat scored a food reward. Get it wrong and the rat was hit with an electric shock. They were effectively ‘reading' the charts with their ears.

Marcovici claimed the ability to train specialist traders in currencies, Treasury bonds, stock options, gold, oil – whatever. Rats were given names such as Lehman (since deceased), Morgan and Kleinworth (maybe he meant Kleinwort). When Marcovici was promoting these furry financiers, a Financial Times blog suggested that his company, Rat Traders, had ‘come up with an economic and efficient solution, available from any zoology department, pet shop or nearest sewer'.

So you want a piece of the rodent action? Marcovici can be contacted through his Cayman Islands address. Just Google rattraders.com.

If you think no-one would take Rat Traders seriously, then consider this: I was contacted at the time by a friend who spends much of his time sitting on a beach in the South Pacific. He provided me with a link to the website and asked me: ‘Do you think this would really work?' Now I said earlier that everyone draws their investing credibility line in a different place. I'll admit this guy's line was drawn a few standard deviations from the mean, but it does prove the point. One man's joke is another man's trading gem.

And before you totally dismiss the ability of rats to trade claw to toe with humans, consider a study outlined by US psychologist Philip Tetlock. It might be that rats have more of what it takes to become successful traders than humans do.

Tetlock described a study that pitted the predictive powers of a single Norwegian lab rat against a classroom of Yale undergraduates.⁷The study was set up so that food appeared on either side of a simple maze in which the rat was housed. On each occasion, the side on which the food appeared was largely randomly determined. But there was an underlying bias: it would appear on the left side of the maze 60 per cent of the time and on the right 40 per cent of the time. Statisticians call this a random binomial process.

Sven, the rat, quickly worked out that if he hung around on the left side he'd win more often than he lost. The undergrads insisted on trying to work out patterns and sequences, chasing the randomness with futile explanations. They performed worse than the rat.

I don't want to talk too much now about what's coming up later in the book, except to say that humans can learn a lot from this rat's behaviour. Successful investing is not about always being correct; that's only ever going to happen in your dreams. Investing is about operating in a world that's largely characterised by randomness. Like the rat, successful investors lose plenty of times. But, also like the rat, successful investors set out to win more than they lose. Like Sven, they've worked out ways of tipping the odds in their favour. And the whole time they're doing it, they're watching most other investors behaving like the Yale undergraduates – looking for and often believing they've found patterns where they don't exist.

It's now time to make a powerful point.

Every story in this chapter has described a person or group of people who truly believed they were onto a winner. Whether it was drawing lines on stock charts, studying sunspots or buying specially trained rats, each believed they possessed a market-beating method. Each drew their ‘credibility line' in a position they believed was correct. You might have been amused at some of their beliefs, but remember they weren't laughing at themselves.

So where is your line drawn? You probably reckon it's in the right spot. Chances are it isn't.

The reality is, investing is not like most people imagine. Options aren't clearly defined, even to those with years of market experience. It's not a predictable or decipherable puzzle solved eventually by attending enough investment conferences, reading the best-selling investment books or following the best financial guru.

Most of the gurus that you believe have the answers are really just like you – wearing a blindfold in a room full of blindfolded people. Fundamentally they possess more chutzpah than market intelligence. They declare to the world, ‘I know where I'm going, just follow me'. And because everyone is blindfolded, no-one realises the guy making all the noise is simply taking them all on a trip to nowhere.

If you don't want to be one of the guru-following multitude, you must read, learn and, most importantly, start thinking for yourself. Then, just like Sven, you'll have the tools to work the odds in your favour. But the tools have to be rationally based. They have to be repeatable. Only then can you hope to beat the market – that is, of course, unless you beat it by plain dumb luck.

Chapter summary

• Question all advice, particularly when it's delivered in a dogmatic way. While chance dictates that it might predict an outcome, often it won't.

• Not everything you believe to be true actually is.

• In the field of investing, success doesn't rely on always being correct. Rather, success is achieved by pursuing logical methods that tip the odds in your favour.