Yes I play Chess. But I am not Grandmaster level.
The word prophylaxis exists in medicine by the way. It is a treatment given or action taken to prevent disease. Prophylactic thinking is quite pronounced in the game of chess by the way. I definitely want my daughters to learn the game.
So time stamping what has happened of recent during this COVID19 period, a recent pattern emerged. Every bad news on the economic events calendar was followed by a good positive announcement that pushes markets up.
Recall that social media communities discussing capital markets keep talking about war chests, recession and investment methods like DCA etc. No one correctly pointed out central bank actions’ and other market participants’ effects on the price paths.
2 Points to extract in this blog post.
Optimal returns capturing, require correct anticipation of the price path and actions taken to extract that. All things otherwise, will be sub optimal. Anticipate correctly, no action taken, no use. Anticipate half correctly, action taken, sub optimal results. Anticipate wrongly, losses. No actions taken at all, you form your own opinions. End of my first point.
My second point will reaffirm why forward statistics are not stable. Suppose the simplistic following:
Price Path = A*(Fundamental analysis) + B*(Technical analysis) + C*(New Catalyst) + error term
- What makes you think the correlation factors (A,B,C) are constant over time?
- What makes you think there aren’t additional new factors other than those above?
- Can you accurately predict the actions of major market participants? (ECB, Trump)
This post is about demonstrating a consolidation of different posts pieced together in my website to show readers a consistency in attribution. My insights and stock proposals are reserved for my clients.
If you feel that I can be of service in your personal finance journey, do not hesitate to reach out to me.