Post of the Day
October 13, 1998

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Subject: Sell all you want...
Author: Rayvt

"Market moves may appear to be random on a day to day basis; however, as you extend your time horizon things start to look a little less random. Down days tend to string themselves together, just as up days do. This is what creates the bull and bear markets. If you can find indicators that confirm your beliefs about the current direction of a market (i.e. market fundamentals) then you can more or less avoid a group of down days. Of course, if you pull back far enough you see that the market is obviously biased in the up direction. I don't think the market is completely random."

This points out a logical contradiction that market timers face. In the short-term, market movement is random. In the long-term, market movement is strongly up. What market timers claim is that there is some intermediate-term where one can predict non-up market movement.
  "A successful market timer must be right not only on the length of the term, but must also be right on the up & down fluctuations during that period of time."
But (assuming that this is the case -- which is not a given), they must thread this needle very carefully. Too short and it's random; and nobody can out-predict randomness. Too long and the upward bias exhibits itself. A successful market timer must be right not only on the length of the term, but must also be right on the up & down fluctuations during that period of time. Getting all this juuuuuust right is clearly very difficult. And, of course, even if one does manage to do it successfully, he is faced with the insolubale problem that the "long-term" appoaches one day per day; when you string together many intermediate-terms, they become the long-term.

Short-term anomolies, like we perhaps are going through now, are fun and exciting, but you must be careful to not comfuse luck with genius.

Ray


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