Justrading i appreciate point of view but i humbly disagree , in my opinion. lets for-example say i have fair coin and the odds are 50/50 but you operating within my casino as an analogy i pay $10 for every-time tail comes up ( im tails) and you get paid $5 dollars every-time head appears over the long run i have strong positive EV , so EV=10(1/2)-5(1/2) = $5-$2.5= $2.5+ Justrading your bringup Turtle traders , this video is from Michael Covel it explains it much better;
Oh and strictly as a by the way, in logic, this argument is described as reductio ad absurdum. Also, nobody implied that the efficient market hypothesis implied a long term zero return. Where did you get that from?
Sorry, please read what I wrote, slowly. Then read it again, so you might, hopefully, understand clearly. All I said was I wasn't implying Buffett is a turtle trader. If for you English is a distant second language, then perhaps it might not be worth your time.
lol i know Warren Buffett is not turtle trader rather value investor who based his work on Benjamin Graham book intelligent investor. what i was trying to imply is trends can randomly occur similar to coin toss . best I remove myself from this discussion
Yes, if this is the best you have to offer, I think it is a splendid idea for you to 'remove' yourself. But thank you anyway for your enthusiasm.
My answers are above in bold. I honestly think you are hung up on terminology and trying to apply a very strict orthodoxy to the meaning of these words.
OK, that didn't turn out so well. Baron changed the format so highlighting your text doesn't work that well, I'll post my response here that follows in order your questions. "justrading, post: 4280063, member: 262807"]I actually believed it was quite the opposite, the hypotheses that is. Since markets are efficient, price cannot but describe a random walk, given there is no reason to do otherwise." This is not true. You can make money in an efficient market. In fact everyone can. Efficient is referring to excess return. Random walk is referring to an unknown return. This might make it easier. Say you wanted to open a pizza joint. You do some research and you find out there are tons of them where you want to have yours but despite that competition, the avg pizza joint owner enjoys a 20% return on his money. You investigate this further and find that pretty much all of them are close to this mean, meaning that the distribution of returns seems to indicate that no one really is going to make much more or much less. So if you open up the nicest place in town, you might make a slightly higher yield but not much more. This is what we would call an efficient market. Marginal revenue = marginal cost in economics world. All firms are price takers and customers set the price which equals demand. We'll call this yield Y* as the equilibrium yield you will earn if you enter the market which is the same as the yield as everyone else earns. Now even though this market is highly efficient, you will actually earn some nice bank. Efficiency does NOT mean you don't make money. Some of the highest earning professions in the world are efficient. Now let's say instead of this market being efficient, it's completely random. Meaning, we have no idea how much you expect to earn if you open a pizza joint. Your best guess is simply yesterday's earnings which should be completely random and independent. Would you enter this business now? Of course not. In this world, if you open the nicest joint in town you could randomly go broke. There is no reason why anyone would succeed or fail, it would be left to chance and therefore no one would enter the market. When you invest or trade, you also get an equilibrium return. For very simplistic purposes let's call this R*. And let's for arguments sake keep it simple and say R* is 7.5% a year which is the long term return of the S&P 500. If you choose to enter the market, like the pizza business, you will make money. And pretty good money too. Not only will you make money, but you have a positive expectancy. You can't have a positive expectancy with a random walk by definition. The question really is, can I do better then 7.5%? And this is precisely the question the pizza owner has. If I put in 20 flat screen tv's to watch sporting events, can I increase my yield greater then 20%? If I stare at charts 15 hours a day, can I increase my yield to greater then 7.5%? This speaks to efficiency. It does NOT speak to randomness. "Doesn't the Random Walk Hypothesis posit that the past movement of a stock price (and such) cannot be used to predict the future price movement of the instrument? That price takes a random and unpredictable path?" Yes and no. Depending on how strict of a random walk once chooses to believe. Common random walk theory does not subscribe to past prices can't be used to predict future prices. It simply states it cannot be done consistently. There is a distinction there. Isn't it based on the idea that since price movement is random, it is not possible to beat the market without taking on additional risk? This is also wrong. If markets are random leverage does not matter. Where leverage matters is in the above examples where we knew we had a positive expected return. For example, the pizza owner could earn more then a 20% yield if say he were to borrow lots of money and open 10 places. The trader can earn a 15% yield in the S&P if he doubles his exposure. If you add leverage to a random walk, in theory, and by definition, it should not increase your expected return because your expected return is simply today's price. "Yet, the very existence of trends means the market can be beaten without taking on additional risk. Buffett epitomises that. Edit: not epitomising trends, but that the market can be beaten and hence price is not random. Sorry, should have made this clear, he isn't a Turtle Trader." Again, random walks have trends. Random walks have a zero mean expectation but not a zero variance. This means that in a random walk model, price increases with variance in proportion to time. Now let's talk about trends as they refer to efficiency. All a trend means is, if they exist, everyone is offered it. A more detailed and structured approach to efficiency says, say you are a long only trader and all you do is buy stocks. What efficiency means is that you are now in this sub group of people who will benefit from any upside trends as a result of your strategy. This means EVERYONE gets this benefit in your group. The efficient market argument would say you can't do better then those in your "group" without adding more leverage or risk to what your group is doing. "If price were truly random, none of us would be here. We all profit when price moves from A to B and we ride that movement. If it were otherwise, then let's just do what Surf advocates, toss a coin, enter, and manage the position." Again you are confusing random with efficient. And you are implying markets are always random or always efficient whichever one you choose to believe, you can't really believe both. Markets can be random most of the time meaning there is a noise effect in any market. There might be meaningful information there, but the question is can you consistently extract the signal from the noise without adding leverage or risk? "I didn't mention leverage, so please let's not complicate things." Leverage has to be included because it's almost the sole source of alpha on wall street and hedge funds. This can be proven empirically by examining the excess returns that are earned in terms of units of risk. Many funds have beaten the S&P for years in terms of absolute returns but not in terms of units of risk. Implying that the sole source of their out performance is not alpha, but leverage. I'm sorry, we have to include this. My answers are above in bold. I honestly think you are hung up on terminology and trying to apply a very strict orthodoxy to the meaning of these words.
Agreed KRE has been holding up well considering... IYT and VNQ are strong on my radar, if we release the market pressure these two should pop up nicely. XOP has not been doing too good lately.