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 â that is, the ones most worth trading â 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 â 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.