Читать книгу Trend Following - Ritholtz Barry - Страница 10

It might sound pedantic or perhaps that I am focusing on the extraneous, I am not: A speculator’s ability to receive a price they can count on as fact– is the foundation of markets. Said another way, with no price, humanity is back to cavemen beating each other with clubs. Austrian economist Ludwig von Mises puts price discovery’s value in perspective:

It is the very essence of prices that they are the offshoot of the actions of individuals and groups of individuals acting on their own behalf. The catallactic concept of exchange ratios and prices precludes anything that is the effect of actions of a central authority, of people resorting to violence and threats in the name of society or the state or of an armed pressure group. In declaring that it is not the business of the government to determine prices, we do not step beyond the borders of logical thinking. A government can no more determine prices than a goose can lay hen’s eggs.20

Although government can’t determine prices in the long run, in the short-term, government will attempt to directly rig the market system via QE, ZIRP, NIRP, or whatever acronym sure to follow.

However, speculation is all there is for making choices about those market prices. Learning how best to speculate using prices is not only a worthy endeavor – it is a survival-of-the-fittest concept that traces back to the earliest literature of Wall Street.

From Young America on Wall Street (1857), quoting a French poem about a latter-day millionaire:

There is nothing wrong with that turn of events. It’s normal. It’s the expected up and down. Luck is always in play, but so is skill. From The Theory of Stock Exchange Theory (1874):

A man who wins by haphazard speculation, who chances to operate successfully until he has filled his pockets, and retires with his gains from so fascinating an arena, is one in a hundred. Any one who knows anything of Stock Exchange speculation will confirm the statement that, to the ordinary run of men, the game is not worth the candle. There are, however, conditions under which speculation, in a market where ten or fifty thousand pounds can be lost in half an hour, may, under given conditions, be systematically practiced profitably. First, and most important perhaps of all those conditions, is the temperament of the speculator. When it is known in a market that a great speculator is selling, weak bulls are speedily frightened out, and when he has such an object in view it is his game to intimidate with all the force of his prestige and the power of his capital. Such a man must have a concrete hardness of indifference through which nothing can penetrate to his heart. It is as necessary to the success of his operations that he posses no more regard for the feelings or pockets of other people than a hungry tiger would for him if he were airing himself unconcernedly in a Bengal jungle. He has a purpose in view, just as a surgeon has when the amputation of a leg has been decided upon. The speculator’s sole aim in the operation is the profit, towards which he cuts his way, regardless of the nature of the obstacles to be overcome, just as the knife is plunged into the flesh, severing the arteries, muscles, and sinews that surround the bone, which it is the object to reach and saw through. For a man to tread a path in which he must systematically not only disregard the interest of other people, but deliberately calculate upon the weaknesses of human nature which characterize the crowd, in order to work upon them for his own ends, it is obvious that he must be constituted in a quite exceptional manner, and not in a way that it is at all desirable others should attempt to imitate. If uninitiated people who enter the arena in which some of the professional speculators flourish, were to spend some months in gathering information and in close observance of the modus operandi, so far as they can get to see and hear, many of them would soon be persuaded that they were utterly useless at such work, and would retire, thanking their stars. The haphazard man, who is the antithesis of the professional speculator, will generally be found as differently constituted as are the results of his operations. The man who makes a study and business of speculating, investigating every detail that it seems necessary to probe until he has adapted it to the rest of his machinery, will be found to be a hard-grained man, sailing very close to the wind, while your persistently haphazard man is mostly a person of flabby character, and no less flabby mind, as easily frightened off a line that he has set himself to follow, in the innocence of a heart that expands with a delusive consciousness of possessing power, as a stray rabbit. Such a class of man is to be found by hundreds in the haunts of the stock markets, and they are always fidgeting in and out, first as little bulls, and then as little bears, disappearing after a sharp panic like flies from a joint of meat that is rudely disturbed by the shop-boy, with the important difference that whereas the flies always get something, the speculators invariably drop their money.22

From How to Win and How to Lose (1883) arguably the first trend-based market player arrives: “The shrewdest operator ever known on the London Stock Board was David Ricardo (1772–1823) who amassed an enormous fortune. In advice to a friend he sums up as the true secret of his success, the rule, every word of which is golden. ‘Keep down your losses – never let them get away from you. Let your profits take care of themselves.’”23

That precept is huge. Timeless. If you were to put Ricardo into language of modern day computer science 134 years later you would say, optimal stopping or win-stay, lose-shift or A/B testing. More clarification from 1883 keeps the focus on taking a loss: “Speculation is looked upon as being so much more risky than other avocations cause its results are more sudden and startling, though not one whit more disastrous. Statistics show that ninety-five out of one hundred men fail in mercantile life. The proportion is not greater among speculators: quicker action is obtained whether it be favorable or unfavorable, and it does not take five or ten years’ time to find that you are playing a losing game.”24

No one is saying that attitude comes naturally. From The Art of Investing (1888): “Then, in theory, it is so easy to win by speculation! To buy at a low figure and sell at a higher, or to sell at a high figure and afterward buy at a lower, seems such a simple operation! It almost looks as if you could go into Wall Street and pick up money from the sidewalks.”25

Intense study, practice, is the rock solid foundation. From Gold Bricks of Speculation (1904):

Speculation is inherent in the human constitution, and men have a legal and moral right to speculate, provided they do so reasonably, intelligently and at their own risks. Reasonable speculation is such speculation as cannot seriously or permanently affect the resources or position of the persons indulging in it. Intelligent speculation is such speculation as is indulged in only after a thorough investigation and study of the subject of the speculation. The professional speculator is in the market not for the purpose of either depressing or raising prices. He is as ready to make money on a rise as on a fall in prices. In either case he will try to ascertain what the probable tendency of the market is before he embarks in any undertaking. No speculator or clique of speculators in their senses would undertake to try to depress prices in the face of a rising market.26

From Investments and Speculation (1911) it’s easy to see free-market capitalism and less government as optimal:

Call it what you will, speculation will always be with us. Prudes may frown upon it, superficial thinkers may confuse it with the commonest forms of gambling, and sociologists may dream of the day when envy, ambition and covetousness will be a thing of the past and the human race can exist in peace without these human traits, but their agitations and outcries can no more check speculation than human ingenuity can devise a scheme to control the tides. What the blood is to the human body, speculation is to business. It is absolutely a necessary part of it. The only difference, if there is at all a difference, is in the form it assumes. What would business be without incentive? In fact incentive is all there is at the bottom of speculation. Men are willing to take risks to acquire wealth. They are willing to stake their capital upon opportunities, which appeal to their judgment. From the pioneer who heedlessly plunges into a trackless waste to find a new home with greater opportunities for the acquisition of wealth, to the modern capitalist, who, to control the trade in a given commodity, plans gigantic trusts, is a long line of speculators, as speculation is behind all their ambitions. The inventor who is, apparently, of all men the least of speculators, takes greatest speculative chances, for he uses up time and energy to shape his ideas into some form where they can be of practical use and should he fail has wasted them utterly and lost all. Illustration after illustration could be given to demonstrate how speculation in a greater of less degree enters into the material welfare of each individual. Without speculation no business could progress. It is the dynamic power behind every incentive to activity and progress. It is the desire for gain, which prompts the inception of every venture. If it is all that, then it can be readily seen how necessary speculation is. In fact, speculation in its highest form has shaped the course of history and often changed the map of the world. Intelligent speculation is no crime. It is not gambling. It is merely pitting human shrewdness against the uncertainties of the future. For that matter, life itself is a speculation in which ministers, prudes and agitators hope to avoid sickness and accident and live their allotted span of life. Between speculation and gambling there is as much difference as there is between night and day. Speculation commands the exercise of the greatest measure of acumen, where gambling trusts everything to luck and the turn of a card. Experience has demonstrated far too convincingly that wherever speculation has been leashed by the iron bonds of the law, the effect has been almost an immediate stoppage in the material progress of the country.27

And finally from Psychology of the Stock Market (1912), one year before the Federal Reserve System was established, the behavioral school comes into focus:

The psychological aspects of speculation may be considered from two points of view, equally important. One question is: “What effect do varying mental attitudes of the public have upon the course of prices?” “How is the character of the market influenced by psychological conditions?” A second consideration is: “How does the mental attitude of the individual trader affect his chances of success?” To what extent, and how, can he overcome the obstacles placed in his pathway by his own hopes and fears, his timidities and his obstinacies?28

This wisdom is clean, clear, and instantly true for those awake. These days, however, speculation is often positioned as a pejorative among the intelligentsia. While I enjoy Oliver Stone’s outsider status, his film Wall Street: Money Never Sleeps (2010) paints speculation quite differently, as his film’s main character Gordon Gecko profanes, “The mother of all evil is speculation.”29

Stone is not alone in making an enemy out of speculation. New age guru Deepak Chopra makes the sweeping generalization that “Wall Street is broken for sure because it succumbed to greed and corruption and pure speculation with no values.”

Wall Street, the phrase, can mean anything. If Chopra is talking big bank bailouts it is easy to agree with him, but pure speculation practiced honestly is far from valueless. Politicians, too, love the sport of ripping speculators, an enduring ritual. United States socialist Bernie Sanders was predictable: “I’m not much into speculation.” The character Bobby Axelrod of Billions counters Sanders: “What have I done wrong? Really? Except make money. Succeed. All these rules and regulations? Arbitrary. Chalked up by politicians for their own ends.”

Axelrod is of course a fictional, fast and loose day trader built on inside information, but his words, words uttered by many an honest man over the millennia, expose in raw form the hatred inferior minds have toward speculation and reinforce it as a worthy endeavor – at least for those disconnected from The Matrix.