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Trading What If Sir Isaac Newton Had Been A Trendfollower?

Discussion in 'Shares' started by Tropo, 10th Sep, 2011.

  1. Tropo

    Tropo Well-Known Member

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    Learning to Love Investment Bubbles: What if Sir Isaac Newton had been a Trendfollower? by Mebane T. Faber :: SSRN

    In this research piece we take a look at some of the more famous market bubbles in history and the extreme volatility and drawdowns they experienced.
    We then examine a simple trendfollowing approach investors could use to manage their risk.
    Across twelve market bubbles we find that a trendfollowing system would have improved return while reducing volatility.
    Most importantly, it would have reduced drawdowns significantly leading to the most important rule in all of investing – surviving to invest another day.
    “I can calculate the motion of heavenly bodies but not the madness of people.”


    To answer the question posed in the title of this article…..he wouldn't of got his arse kicked so badly if he had been a trend follower.
    The quote above is from from Sir Isaac Newton after his fateful second foray into the South Sea Bubble of 1720. (The South Sea Bubble was the 1700s equivalent to our modern day technology crash/GFC).
    It cost him some ₤20,000, which is a staggering sum, when you consider that the Nelson flagship HMS Victory cost around ₤68,000 to build.
    Chris T.
     
  2. wdongli

    wdongli Well-Known Member

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    Who don't want to follow the trend and make a lot of money? What we want seldom is followed by what we should do! How could you identify the trend, the trend changes, the different scenarios of the future output?

    The problem is most of us don't really know what make the trend. Who didn't want to sell at the peak before GFC and buy at the worst time of GFC and be a V-type recovery followers? In the rear mirrors everyone could tell what the past trend is. In the front screen nearly everyone just see the clouds, the party, and ruins which is the reflection of the image from the rear mirrors, the patterns! However the patterns could be decided by random noises or some determined forces. How many could tell the difference?

    Some see the current market crash as the chances. Some see it as the sign of sky in falling. Some could not see anything but worry even after all of their chips gone! History told us Sir Isaac Newton was a bad market warriors. To the motions of heavenly bodies he knew the causes for the trend. To the market he didn't have any clue why he could lose the shirt so quick!

    It seems more reasons than he was not a trend follower for him to lose the shirt! A falling apple sent a flash to the mind of this great man but it seemed no any apple could give him the insight, wisdom, and intelligence. He was a gambler in the market even he was still a greatest man in human history! After he failed his gambling, he still was ignorant and arrogant to blame others' madness.

    He was mad actually! He didn't know market is a war place and need some senses about the art! Too many genius have broken their beautiful wings and gone forever from the market after they lost the shirts!

    These genius if lucky and find the right direction and points, they could surprise the world. However if they are not lucky and stay at the wrong time and place in the market they would be shocked and surprised! Why? The market doesn't take captives but just wipes the chips away if you are wrong. They don't think they could be wrong until too late and too much! So usually they could be excellent or stay in the hell forever!

    I just want to get the margin of safety and learn the art of war to service these great warriors in the market without matter how great they are in other field. What if no trend at all for a time too long in a individual life?
     
    Last edited by a moderator: 12th Sep, 2011