Crystal Ball Trading Game
elmwealth.com
elmwealth.com
You don't think the front page of the WSJ would contain a decent summary of the day's business news?
If you want long term trend data, it’s easy to get good data for free. It’ll be boring and most trends will be positive (thank our lucky stars we live in the technological era). Unless you have a real passion, you’ll most likely not visit one of these sources twice (World Bank, IMF, FRED in the USA, tradingeconomics.com, the SEC)
If you want short term, real-time data, you’ll likely have to pay for it. The downside is that there’s a deluge of data and almost all of it is useless (unless you care about up-to-the-minute prices for beans in China or whatever).
The job of journalists is to mine all this info for something sensational or, failing that, spin some short term data bump into a big story.
Way back in the 1940’s, there was so little data out there that the WSJ could simply print all the current market events and call it a newspaper. There was so little entertainment out there, that people bought and read that paper!
Information dissemination remains an unsolved problem.
edit: I will say that's a profit opportunity both for those who can spread fake meme news and for those who can bother to see through it, but for the vast middle it is idocracy.
- The Drugs Young Bankers Use to Get Through the Day—and Night
- CEOs Want Trump to Change Course on Tariffs. He Isn’t Budging.
- Untangling America’s Love-Hate Relationship With Corporate Power
Etc, it doesn't really tell you much anything about what's going on in the market. Yahoo Finance on the other hand is a great overview, the upcoming fed meeting is front and center, there's a market overview on the right, highlights of specific big movers, etc.
Not anymore?
Take front page today, first "Opinion" title: "The Trans Double-Mastectomy Lawsuit" (not sure what their stance is here: they went full woke but they're toning wokism down now that Trump won). First big headline: "The drugs young bankers use to get through the day". "America's love/hate relationship with corporate power".
"How an Ivy League Police Commissioner Hunted an Ivy League Murder Suspect"
Facepalm. I mean, sure, if I was reading The Guardian in the UK or something.
But how the fuck has anything of that to do with business and/or finance?
That's what I see first, front page.
Funnily enough the first title related to business or finance is one HN won't like: "These 5 Wall Street Titans Thought Bitcoin Was a Fad. Here’s What They Say Now".
People are making fun of the WJS, calling it the "Woke Street Journal". They've been more interested in pushing the ESG ideology (the one were banks in the US [and the EU] are secretly assigning scores to every US individuals depending on how "ESG friendly" they are), including solar (not that there's everything wrong with solar) and most of all running an anti-Trump / anti-Musk campaign, being sure Harris would won, then running actual news about Wall Street and businesses.
They just lost the plot.
I think they will still trade with too much leverage and poor asset allocation, though.
It’s not just timing the bubble that is tricky. Sometimes the “obvious” bubble never ends up popping.
In my understanding day trading is mostly about looking for pretty patterns in lines and ascribing meaning to them, as well as attempting to trade on public information that HFTs and 3,000 well-paid and professional traders at GS have already priced in
That said, COVID would have been a better example for airline and hotel stocks.
[Also IMO, PUT options are safer than shorts. Do your own research.]
There's an SF book called Replay that imagines a guy reliving his life from his fifties or so to his teens or so. One of the clever plot points (not really a spoiler) is that he just happens to remember a highly improbable sports result around the time of his replay which, with the help of some friends and family loans, makes him very wealthy. The book would have been a lot less interesting if the main characterer was just starting out as a poor college student over and over again.
Sure, I could have made money in dot-com/bomb (and maybe bitcoin) but I still would have needed a fair bit of capital to have made life-altering gains.
To the point of the article, predicting how most specific company or economic outcomes will affect stock prices is pretty much a sucker bet. Perhaps excluding some specific events like 9/11--but even that effect wasn't that great.
Even the poorest American could probably have scraped enough together to own that much bitcoin back then. If they held onto it until now, they would be a billionaire!
The more interesting experiment to me would be if you gave me a week's worth (say) of the WSJ from ten years hence, what could I do with it?
I was arguing that with the right information, you could turn a few bucks into a massive fortune (bitcoin being a single example).
Everyone knows it can happen. That is why get-rich-quick schemes work.
A good headline for trading is rare, think disasters, election wins maybe. Interest rate changes.
Better would be insider info (not insider trading). You work somewhere so you sussed out their sauce but to the market it is yet another company. Pre or soon after IPO is best.
If you are not up for that, Klarman explicitly notes that index investing will be fine, but not spectacular, and in particular the index will trade in stocks for no good (investment) reason but simply because they have to keep the index balanced.
Trading on news and events is essentially gambling, although you can use other people's reaction to news to time investments so long as you've already decided to invest and were simply waiting for the price to meet your criteria to make the trade.
May I ask where / how you came about your copy? I've seen it mentioned several times but have found it difficult to locate. (For example, the used copy on Amazon is selling for $2000!)
[1] https://www.gyroscopicinvesting.com/forum/viewtopic.php?t=13...
It's famously difficult to buy. The author is an investing billionaire so he has little financial motivation to release an updated version and many demands on his time preventing it.
Pirate it.
The seasoned traders:
> They did not bet at all on about 1/3 of the trading opportunities
This has always stood out to me about these trading challenges. They make it seem like you must always be invested and a lot of lay people fall for that.
its a good entry point, id say - though IPO trading in general is a huge risk, rather pick stable/established ticker items
I am not advocating IPO trading.
I am saying join unicorn X, see of they have a good plan, if the company is well run etc.
You can tell because you are working there. Then if it is a good buy buy it, otherwise don't.
It is a bit like a hunter "tracking" their deer for 2 days rather than walking around shaking trees.
If you've joined unicorn X pre-IPO, you've hopefully got a decent amount of pre-IPO options, at which point might I suggest diversifying in case the market doesn't share your confidence in the company.
- you aren't sure where the announcement will come from first, i.e will it leak via journalist
- there will be plenty of false announcements
- the official SEC twitter account got hacked and posted it was approved (Phone number taken over, no 2FA enabled lolol)
- there will be volatility around fake announcements as others are running bots
- LLMs interpretation of "BTC ETF approved" vs "With BTC ETF approval" can cause you to start eating lot of transaction costs
You can still (presently...) come out on top as a bag of meat. Is it worth the hours and cortisol vs half decent tech job? going to say entirely dependent on the scorecard afterwards and if you value doing something with actual purpose.
For something like GDP numbers, the price moves within milliseconds of the print, before your browser can even refresh and minutes before the numbers even show up on twitter.
That statement has the wrong boolean operator: the implicit OR in place of commas should be replaced with AND operators. The reason is simple - if you are not willing to cheat, you are leaving an edge to those who do.
You don’t have to be the best player or to cheat on the poker table for +ev
You have to be better than the bad players, and know when to fold against a better player
You will make less profit than cheats. But, you won’t have to cheat
That is easier with fair opponents. Cheating could help the worse poker player to win.
In a field of apple tree, the best/fast/cheater climbers got the most apples but eventually everyone showing up can pick one or patient for the next season.
Pocket and finance needs at the very least one looser for the others to win something. Others cheating and you not, does lower your chances to win.
Based on DOJ fines cheating is required!
BUT!!
Cheating is only strictly required in the trio when everyone is doing the same thing (olympic 100m) vs. different things (trading).
(In the olympics the prize is honour, achievement, etc. so most people wont cheat for that reason.)
Philanthropic work is great way to get shills to come out of the woodworks.
Lost 52%.
I think “with 10% leverage” deserves a lot more than a parenthetical here.
In this experiment only 1/3 of days were random, with another third in employment report days and the last third in fed announcement days.
When I did this with -10x SP500 every day the result was a +36% return, which is surely not what you would expect if the trading days were purely random.
"insider trading", when insiders trade, say the CEO sells his stock bonus, is regulated (has to announce in advance, follow a plan) but completely legal. Some investors track how much insiders are trading in order to judge confidence in a stock.
"trading on inside information" (whether you are an insider or not) is not legal.
Also for private companies you often get an all hands with financials, sales info, strategy etc.
The bet here is: this company isn't just lucky they have a killer system. You would get shares privately if possible. Even at IPO at a higher price, knowing they are kickass you can buy then.
It says that the experienced traders did make money. The OP above is saying that one possible explanation is that the experienced traders simply remembered what happened. As a professional trader myself this seems very reasonable
if you could find an alien civialization with a stock market I'd expect pros to do similiarly well just based on that.
amature traders in the real world tend to be more in tune to rumors and thus more likely to get it right since they had already traded by this sime. (or so I would guess)
* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...
VBTLX VFIDX VFSUX VTI VXUS
Bonds: BND BNDX
Buy and forget if you just want to play it safe
I'm currently looking at a front page and am just wondering: is it 2008?
Purely having knowledge from a day in advance without any other context, yea that's hard. IRL, we also have context.
A crystal ball showing slightly+ reliable price data, at a reasonable interval in the future. (E.g, minutes+) would make a competent person astoundingly wealthy.
revealing the future doesn't give free insight into the dynamics that produced it, and you don't need to know the future to identify where a dynamic among factors or parties may be in play.
I think something interesting about the news and its supposedly predictive power is that the market already discount the news.
If you look at the daily and weekly charts for SP500, it has been on a bill run, for a bunch of unknowable factors but I suspect one of them is the expected rate cut from the fed. Now, if the cut was, for example 50 bsp, instead of 25 that would be news indeed, but the again, last rate cut the prices jump sharply exactly at 1 PM EST, meaning that computers, not humans, read the report and placed hundreds of orders in milliseconds after the report was released.
IMHO knowing the future 1 day ahead is not enough because in that timeframe the market has already discounted the news.
1. rate cut
2. S&P rises, financial press writes "market rise because of the rate cut"
3. later during the same day, S&P reverses and drops below price when rate cut was announced, financial press writes new article "market drops because of the rate cut"
rinse & repeat. they literally are reacting and correlating price movement with whatever big news happened.
And the bond market controls rates.
For example, if you believe we would had decades of a near zero federal funds rate, you might be willing to accept a 2% yield on a 30 year bond. But if you thought the long term federal funds rate was going to be 2%, you might want 4% or more on the long bond.
https://www.elliottwave.com/articles/fed-rate-cut-interest-r...
In the proctored experiment the best rate of pay was achieved by those who just skipped trading for each of the 15 days and left after 2 minutes with $50 in their back pocket.
I would like to see the payout distribution graph with random trades for comparison against the students.
Take interest rates for example: Lowering rates means that money will be cheaper (good!) but that the fed see's slower economic times ahead(bad!). So now you need to put the decision on context, which adds a whole host of assumptions and estimates. Both sides have a strong logical argument for stocks moving up or down.
So you end up with traders voting with their dollars once the news drops, and it is not (practically) possible to know which group has more firing power going into the print.
It's also not uncommon for a stock to tank the moment the news drops, and then skyrocket seconds later (or the inverse). Competing theories and the winner is whoever has more money to move the stock.
Stocks go up on rumors but don’t do much or go down a little when something is confirmed.
Ended up with a 1000% return. Just need a time machine now.
PFOF:
## The Fruit Stand Scenario
Imagine you're at a large farmer's market with numerous fruit stands. You're looking to buy a crate of apples, and you ask a friendly fruit stand owner, Citadel, for the price.
*The Setup:* - You want to buy a crate of apples - Citadel’s stand is selling apples for $50 per crate - There's another stand nearby selling for $48, but it's not immediately visible
*The Front-Running Process:*
1. *Information Advantage:* Citadel, being a regular at the market, knows about the nearby stand selling apples for $48.
2. *Customer's Intent:* When you ask Citadel for the price, they realizes you're likely to buy a crate.
3. *Quick Action:* Before quoting you a price, Citadel quickly sends his assistant to buy a crate from the $48 stand.
4. *Price Quote:* Citadel then tells you his price is $50 per crate, which you accept.
5. *Fulfillment:* Citadel’s assistant returns with the $48 crate, which Citadel then sells to you for $50.
6. *Profit:* Citadel pockets the $2 difference as profit, without ever risking his own inventory.
## The Market Making Parallel
In the financial markets, this process happens at lightning speed:
1. Market makers see incoming orders before they're fully processed.
2. They quickly buy or sell ahead of large orders on other exchanges.
3. They then fulfill the original order at a slightly worse price.
4. The profit comes from the price difference between exchanges.
This practice, while controversial, is often justified by market makers as providing liquidity and tighter spreads. However, it can be seen as unfair to traders who may not get the best possible price for their orders.
- Order Flow Sales: This involves brokers selling information about their customers’ orders to interested parties.
- Potential for Front-Running: While not inherently front-running, selling order flow can enable it if the buyers use this information to trade ahead of customer orders.
- Payment for Order Flow: This practice allows some brokers to offer commission-free trades, as they make money by routing orders to specific market makers.
Front-runners do take on some risk, but it’s typically minimal:
- Speed: Modern front-running often occurs using high-frequency trading algorithms, minimizing the time between the front-runner’s trade and the large order execution.
- Committed Orders: Front-runners act on knowledge of committed orders, not mere possibilities. They have an informational advantage.
This is clickbait to harvest emails. I don't see anything to suggest it is correct. Show price histories next to the headlines.
Generally the reaction of a stock has about a dozen inputs ranging from other market participants expectations, macro/rates, broader market, politics, etc.
On other participants expectations alone..
You might see a news story like "Apple ships record number of iPads" and go wow great, I should have bought Apple yesterday. But you don't know what other participants expected in terms of number of iPads shipped.
Further, you don't know what metric of Apples earnings report that other participants were tracking most closely. What if it was gross margin on iPads sold, and while the units sold went up.. it was all in a newer lower end priced model that dragged down overall margin in the segment?
Further what other news did you miss - what if in some parallel dimension of this game, there was a news story on page 5 about MSFT/GOOG shipping a truly competent iPad competitor.
Or what if what other investors respond to is some aside comment made on the earnings call regarding an expected slowdown in services revenue?
a more extreme "crystal ball" were certain life insurance policies written by the French insurance company Aviva. They allowed customers to purchase shares today at last week's prices. This sounds incredibly stupid, but that's what the contract said, although the insurance company would like to get out of it. The legal battles have dragged on for a couple decades at this point.
> The average payout was just $51.62 (a gain of just 3.2%), which is statistically indistinguishable from breaking even.
Yeah, it's not statistically significant because (1) the experiment was stupid small: "118 young adults" And (2) the participants didn't have to care: "each participant $50". With (3) no choice of instruments "trading the S&P 500 stock market index and a 30-year US Treasury bond futures contract". And (4) randomly chosen 15 days.
Still furthermore the experiment was made stupid tough: (5) the participants are students and (6) had to allocate bets for 15 events and up to 50 times leverage - and that is very difficult to do equally for newcomers and established investors who have not deliberately worked on the issue of bet size and allocation. (See The missing billionaires - A guide to better financial decisions, Victor Haghani and James White, 2023 - excellent book on that topic)
What in the world?? That's a lot of trouble to go to for one cheap marketing headline. With zero applicability to the real world (except as cheap marketing headline and also: studying bet size / allocation is good advice for would be investor.)
Indeed, they themselves recognize the thing in their conclusion: more thoughtful and experienced people did great - although perhaps still not significant because they managed to ask only 5 of them...
First you must be right.
Second you must be right while others are wrong (or no-one will take the other side).
Third you must believe enough to bet big.
Fourth you must bet big.
Fifth, you must have been right at step one.
As you grow older and observe the world from your suburban mansion, you grow increasingly irate that people didn't listen to you. You made your own fortune, but so many people just ask for handouts nowadays. Time to get involved. If you donate enough money to the other rich guy who is running for office, he'll make you ambassador to Italy, at least...
I wonder why these successful people don't pick people and pay them to do a strategy. It can be a win-win. I know why they don't - deep down they know that luck was a major factor.
( I'm aware of one such situation - I think it was called called the turtle trading or something, that was done in the 80s)
"Markets can remain irrational longer than you can remain solvent" - John Maynard Keynes
Even if you are correct about the direction and magnitude of price movement, if you are wrong about how long it will take you can lose money. This is true for both short and long positions.
First you have to be smart, an IQ of less than 100 won't do
Second you have to pick the right product/service.
Third you have to persevere long enough. One cannot give up too soon, But persevering too much would be a case of sunken case fallacy.
Forth you have to time your product/service. Too early or too late, it will affect your parents.
etc...
Big blunder. Killing every profitable trade. You have to account for the fact that loosing hurts comparatively more than winning. Keyword is "log optimal".
Yes I get it - but take the example on the page - 60% chance of a win and get back same bet size, I guess most people would be reluctant to bet 1/5 of their bankroll each time.
Esp if you are not sure about the 60%.
I think most people would see 1/5 as betting big. Is what I am saying.
If you see it as betting small, maybe I would like to understand
This is not what TFA says at all. Especially this one:
> Fourth you must bet big.
is explicitly listed as a common mistake all the involved students exhibited.
No. You must bet right - and it depends on how right you are. Look up the Kelly criterion. Bet 1 - 2*probablity of losing of your current pot - will maximize expected return (but is a bit volatile for some tastes)
The rich can afford the risks associated with leveraged crypto and AI stocks, the poor can only afford VOO or (worse) Treasury bonds because their life would be on the line if they lost money.
If you actually have money to throw away, you'd be an idiot to not have a pile of BTC right now. If you don't have money to throw away, BTC is dangerous as fuck.
The markets are designed to continually widen the gap between rich and poor.
When you combine some of these simple models with an adjustable "redistributed back by tax" function, you get results which resemble the various countries of the world.
http://www.scientificamerican.com/article/is-inequality-inev...
I do agree with your overall take that there is a recent trend towards de-democratization of investment opportunities. The invention of the stock market was a huge deal because it massively moved the needle towards democratization.
BTC ain't it, however. Good luck proving the hypothesis that BTC is not tulips.
Personally, I see two major outcome sets. Either Russia "conquers the planet" or it doesn't. If it does, BTC is no longer any use to Russian-aligned oligarchs to bypass sanctions. If it doesn't, the West will eventually wisen up and hamper BTC transactions to the point that the alternatives win out.
Those are two likely crashpoints. There are 10000 possible others. Musical chairs always ends, it's just a matter of when.
I expect it would does better than average.
I also expect similar thing are already running.
> I also expect similar thing are already running.
Only 1 of these 2 statements can be true.