Why Degrees Don't Matter in the Market!

Discussion in 'Trading' started by trader99, Jun 16, 2003.

  1. trader99

    trader99

    This is what you guys were looking for.

    ---------------------------------------------------------------------------------
    The Brain Drain
    Monday June 16, 11:24 am ET
    By Jonathan Hoenig


    This article was originally published on SmartMoney Select on 6/09/03.

    WHY AREN'T THE most highly educated money managers also the most profitable? Because in the market, it doesn't matter what you know, but what you do. All of the degrees, training and letters after a name don't add up to much unless they're put to good use when it counts.
    ADVERTISEMENT


    The problem with being overeducated is that, too often, knowing too much prompts us not to think, but rather to assume. And because a trader must always focus on a security's current action, the challenge is often not to know your history, but to be able to forget it. From my perspective, the best indicator of the market is the market. When we know (or think) too much, we often slip into the habit of assuming relationships in the market that don't always hold.

    For instance, many people have come to assume that stocks and bonds are negatively correlated; that is, when equities rise, bonds fall. And historically, that has often been the case. But as we noted in last week's column, over the past few months both stocks and bonds have been strong. Traders have benefited from owning not one or the other, but both.

    So when it comes to analyzing two separate markets, I do my best to tune out the chatter about whether they should or shouldn't be moving together, and instead focus on how they are moving individually. If two asset classes are strong, they merit consideration for purchase regardless of whether they seem to represent contradictory economic forecasts. You're either an economist or a trader. Sometimes it's thinking too much that'll trip you up.

    Another common problem unfolds when investors assume the market's every action must be tied to a specific news event. So when stocks rally, it's only because the SEC filed suit, or because an economic number was released or because the threat level was dropped a hue. Or when equities fall, it's because Martha wore white, or SARS spread, or the tax cut got passed.

    Get with it. The truth is that every day there's going to be some news and every day the market is going to move. So why is it that we always try to use one to explain the other? While I do believe knowledge of current events is helpful, a trader must follow the market, not the news. That's because the big moves — that is, the ones most worth trading — take time, and therefore can't be pegged to a single event.

    And therein lies the danger in assuming that the news moves the market. During the course of a bull run, numerous "stories" pop up that supposedly explain a market's rise. Yet the news changes every day, while legitimate bull markets trend over time. It's instinctive to want to know why a stock might be strong, but trading is like working for the mob: Sometimes, it's best not to ask too many questions.

    The best example can be found in the energy markets, which like many other hard assets have been in an almost uninterrupted upward trend for more than two years. But just consider, over that period of time, how many news "pegs" have been trotted out to explain the higher prices in both oil and natural gas. From the warm summer to the cold winter...from Enron to the California energy crisis...from Iraq to Iran...from the Saudis to SUVs...almost everything has been mentioned except the obvious — that is, a legitimate bull move.

    The best way to avoid making assumptions is to focus on what matters: price action. Because once you begin making assumptions about how an external news event might affect a market, you implicitly accept a cause-effect relationship that just doesn't always hold up. Like Warren Buffett, a trader should stick to his or her sphere of competence. And although many professionals would seem to disagree, it's neither economics nor journalism, but the market itself.

    Jonathan Hoenig is portfolio manager at Capitalistpig Asset Management, a Chicago-based hedge fund.
     
  2. Is this mofo on drug? (I am talking about Jonathan Hoenig)

    "WHY AREN'T THE most highly educated money managers also the most profitable?"

    Ever heard of James Simons? or Ken Griffin?


    I am not saying education is MANDATORY, but to imply that its a roadblock warrants ridicule
     
  3. JUST GET YOUR DEGREES PEOPLE

    Its so much more than having it

    Look at ggekko..... 2000 posts but clueless

    decided to drop out of school

    now looking to coldcall mortgages or some BS
     
  4. Author's assertion: Bond and stock prices Usually do not move together; as if the assertion was common sense....


    I disagree:

    "Although this parallel rise in asset classes feels uncommonly good after three years when bonds beat stocks by a mile and then some, an analysis of stock and bond returns over the last 30 years by Schwab Portfolio Manager Kimberly Formon finds that, in fact, stocks and bonds move up together more than half the time. Indeed, in nine of the last 30 years, both asset classes showed double-digit gains. "

    Schwab Newsletter
     
  5. y, having a degree (and the industry experience that it enabled) has certainly helped... if not my acumen, then at least my confidence.

    phreedom phighter types are the other end of the spectrum tho.
     
  6. .
     
  7. OVertheLINE:

    ROFL!! You got that one right! All these young guys who decided not to go to college or drop out because they don't want to work hard and now facing a downturn in the economy and just banking their entire future on daytrading. It can happen, but it takes time to get good at daytrading. And they don't have time or skills or money on their side.

    The market will always be there. But you better have something to fall back on if trading doesn't work out. And that's what a college degree is for.

    good point!
     
  8. Speculation is observation. Period.

    No Ivy degrees required.

    Go to the bar's by the NY Merc at 3:30 and watch the characters that come in.

    Usually Oil traders. All Loaded. And all look like extra's from Goodfellas.

    I personally know a guy who trades oil..makes 7-10K per
    day...and is a high school drop out.

    Also good friends with a "London ghetto" guy who trades Mex peso..making 1.5Mil per year. (Spent his teen years in jail)

    My business partner has degrees from Columbia and Carnegie Mellon, and does exceptional, first rate company research, can't trade for the life of him!

    Go figger, I'm the trader, fresh from the streets of Brooklyn.

    Best
    David
     

  9. While that is true, what do you do about people like Gordeon Gecko and the rest of 95-99% of the people who try to trade and FAIL?!

    Tell them not to go to school and just hope one day they will figure it out and hopefully not go broke/bankrupct. Sure, I think talented people are from EVERY SEGMENT of economic, social, intellectual SPECTRUM. But the problem is NOT everyone is a talented trader. If you are a talented trader then it doesn't matter if you drop out of high school or jr high or have a phd. It just doesn't matter. But the problem is most people are NOT talented traders by definition. So, they gotta have something to back themselves up in case a career in trading doesn't work out(most likely not given the high failure rates!)
     
  10. true, so true...... the commodities traders who,,,, so many steal for a living out of the largely unregulated pits in ny.... the only speculation is what ordes can they get guarantees that they can lean on..... chicago has slightly tighter controls in the fixed income, ag and equity pits...

    gangsters or thieves........ its all the same goodfellas

    either way.... its not the straight way to go
     
    #10     Jun 16, 2003