The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Retirement Investing


Subject:  Re: newbie Date:  11/30/2004  10:17 PM
Author:  rookieJoe Number:  43362 of 83130


For the sake of discussion, lets just say your market timing scheme works, and you can beat the market.

That would mean you have found an inefficiency in the market and a way to exploit it. That's something the vast majority of the best money managers can't do - and by best, I mean people like the pension managers at fortune 500 companies.

But lets just say you can do it... Congratulations! But now what?

This is like walking into a casino and making money because you know the game better than the dealers. But here, the dealer gets to change the rules whenever he figures out you've caught on.

There are a lot of brilliant people in the world trying to find and exploit such inefficiencies. Every time one of them takes advantage of your timing mechanism, it works to counteract it (I assume you understand why that is, and would agree on this point).

If your mechanism is really profitable, it is only a matter of time before it is exploited extensively enough to remove it. How many hedge funds do you think it would take to do it? Once that happens, it is only logical to expect this trading mechanism would behave like the average trading mechanism - significantly below passive investing.

That is probably only a minor concern for you. Since you are a sophisticated enough researcher to find this, you presumably would have a change at identifying when it no longer works. So you could move on to the next great inefficiency.

But what about the amateurs you recruited? If they weren't capable of identifying this initially, how soon do you think they would catch on if it lost its effectiveness? If they truly believed in your method, they may not have much left by the time they gave up.

This is why I think it is irresponsible for you to make recommendations like this to amateur investors.

I see the question of whether or not this works as an interesting intellectual debate.

But I think whether or not your mechanism works, has no bearing on whether or not it is appropriate to suggest this to new investors.

FWIW, I'm not trying to get you to go away. I just don't think threads like this are the place for this discussion.

Copyright 1996-2017 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us