Post of the Day
September 8, 1999

From our
Fribbles! Folder

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light.


Re: Trading and randomness

Author: idxbuster


I took the liberty of reading your last ten posts ("Stop bashing traders" et. al.) and I think I have a better idea where you're coming from now. Your screen name pretty much captures it.

I can see why it would be frustrating to go up against TMF on this one and I empathize with your frustration. I would even agree that TMF community's frequent bashing of pet topics can sometimes border on the stubborn and smug side and get under one's skin. But to be honest, there are two main reasons why I don't sweat it and keep coming back:

1) Unfortunately, the line between irreverant humor and smug grandstanding can get pretty thin. Personally, I'm not willing to give up the humor. The "AMUSE" part is a key offering. The attitude comes with the territory. In fact I could even argue that it's the attitude that entices the contrary viewpoint to get involved (admit it, you're not here for the technical trading info!). This leads to some of the best discussion, and humor.

2) I have to admit that where TMF community has a clear bias, it is consistently on the side of protecting the beginning investor. A good deal of the "first-level" information available from magazines, brokers and the water cooler tends to favor some really bad strategies for the beginning investor. In this context, TMF is a true breath of fresh air for us new investors.

The truth is that a lot of beginners do lose a lot of money to un-disciplined frequent trading, over- emphasis on market timing, high-load, poorly managed mutual funds, and self-serving broker advice. It really does make more sense for most beginners to follow TMF's 13 steps until they learn enough to make smart decisions for themselves.

Now I'm not sure I believe that the FoolishFour will always "Crush the Market" or that "80% of all mutual funds suck" or that "All brokers are out to churn" or that "All technical analysts are wacko". And if you read carefully, I don't think TMF really believes this either. But if it takes some "bashing" on these topics to grab the attention of new investors and educate them before they fall into the common traps, then that mitigates the attitude big-time in my mind. In other words, I see it as well-intentioned smug grandstanding.

So don't take it personally. I don't think it's aimed at the educated technical analyst that you appear to be.

On the subject of my Fribble, had I approached your comments from this perspective, I'd have focused more on the Fribble as a caution to new investors. I would have focused less in my reply to you and in the Fribble itself on all the probability stuff, since it's really only secondary to the key points.

Frankly, I haven't learned enough about technical investing to want to try it or not. I don't have a bias against it. I defer to your knowledge on the subject.

But I do think that frequent trading is a really bad idea for new investors, and I do fear that some of the kids playing the Yahoo! challenge, along with many others, are getting the wrong idea.

Moreover, the four things I tried to stress in the Fribble - 1) the potential for compulsive behavior; 2) the difficulty of distinguishing skill from dumb luck; 3) the likelihood that a naive investor might mistake someone's run of dumb luck as support for the strategy; and 4) the good chance of losing a lot of money - all make frequent trading and tote board watching a particularly dangerous trap for the new investor.

So we could argue until the cows come home over RuleMakers vs Technical Trading and maybe not get anywhere. But wouldn't you agree that RuleMakers is a lot better strategy for an investor to follow in the early learning stage?

Just thinking "out loud". It's the only way I can think something through...