Friday, November 6, 2009

Lessons Learned

All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.

Arthur Schopenhauer (1788 - 1860)

Perhaps the least surprising thing the market crash of 2008/2009 was, was that no one saw it coming.

The establishment experts were all asleep at the wheel. Research analysts in Wall Street or the City of London were overwhelmingly bullish about just about everything. Buy Recommendations exceeded Sells by nearly 8 to 1. [This is not as big a deal as you might think -- the “official” experts are always bullish, but this was extreme]! Those few brave souls who sounded a negative tone were derided and then silenced. Now of course the ridiculous excessive of the years from 2003 to 2007 are obvious and the man on the street knows how we were taken for a ride.

The relevant question now for the trader or investor is what have we learned. To fail to learn from history is to be condemned to repeat it. I contend there are three lessons [ 3 blog posts?:]

1: Alleged market experts don’t know much. By the time their generic investing advice gets to the average client its worthless.
2: This worthless advice is extremely costly (typically some percentage of the assets under management, and/or commissions on trades and/or performance incentives and/or bid-offer spreads). Given that it has no worth any price is too much to pay. As Warren Buffet pointed out once these guys have their hands on your checkbook under-performance is guaranteed.
3: For decades apparently expert advisors were simply lucky. Their “ Buy and Hold” strategies succeeded by virtue of an underlying economic success which has (with hiccups) lasted since the ‘50s. A long-only random walk monkey would have done as well and cost less.

There is an alternative and we’ll be discussing it in my next post.

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Pat Brazel, CEO of November 2009 has seen a significant upgrade with our new Beta MarketPlace and new rich internet application for finance, the Zignals Dashboard. Zignals now has new fundamental stock alerts, stock charts for Indian, Australian, Frankfurt and soon Canadian stocks, tabbed stock list watchlists, multi-currency portfolio manager, active fundamental system stock screener and trading system builder. New Forex and Index data.

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