OK, guys, I know it looks like I am arguing with myself, but I found the weak spot in my argument that "you cannot beat the market" that no one brought up. I know that many of you will say - what was this all about, we knew we could beat the market and didn't need anyone to prove it to us. But I needed to have a deeper understanding of the nature of the market. So here are my new thoughts:
I wrote that, no matter how smart, you should always try to avoid competition as much as possible. So far so good. Then I showed why the stock market is the most competitive market in the world, which is also quite clear. But my conclusion that you should avoid the stock market because it was the most competitive market was wrong. Because I overlooked the alternative. I fell prey to conditional probability. It is true that it is better to operate in a non-competitive market. It's nice to be Microsoft or Google and have just a handful of competitors unlike the stock market where you have millions. But the probability of actually arriving there is very, very small. Indeed Google enjoys an imperfect competition in its market. But if we rewind the tape back to 1998 where you had thousands of incredibly smart and talented computer science undergrads from Stanford or MIT, the chance of creating a successful web application and survivie the dotcom crash was probably 10,000 to 1. In other words, the race to uncover and exploit markets with imperfect competition attracts some very bright minds, and the chances of emerging as the major player in that market are just as good or just as bad as the chances of entering a perfectly competitive market and extracting consistent abnormal profits. Or going back to my original post, I wrote that your "skill, intelligence, emotional control etc. simply don't matter in perfectly competitive markets". That's true only as much as they don't matter in any kind of market when we consider the probability of discovering or penetrating that market.
That means that essentially you have the same chance of success in whatever field you go. It would make no difference how many competitors you have, the competition is always there. The choice should only be determined by what you love to do, and if trading is the game you love, then by all means go ahead and gain as much experience as possible and accept what the market will give you in return. I know that to most of you this would seem pretty obvious, but I really needed to get this "prefect competition" argument out of my way. And I really didn't know how when I started the other thread despite my experience in the market up to that point. I appreciate that you actually bothered to read my thoughts and didn't just accuse me of heresy. My logic was flawed but I am glad I found a way out. I hope I am not wrong this time again
I wrote that, no matter how smart, you should always try to avoid competition as much as possible. So far so good. Then I showed why the stock market is the most competitive market in the world, which is also quite clear. But my conclusion that you should avoid the stock market because it was the most competitive market was wrong. Because I overlooked the alternative. I fell prey to conditional probability. It is true that it is better to operate in a non-competitive market. It's nice to be Microsoft or Google and have just a handful of competitors unlike the stock market where you have millions. But the probability of actually arriving there is very, very small. Indeed Google enjoys an imperfect competition in its market. But if we rewind the tape back to 1998 where you had thousands of incredibly smart and talented computer science undergrads from Stanford or MIT, the chance of creating a successful web application and survivie the dotcom crash was probably 10,000 to 1. In other words, the race to uncover and exploit markets with imperfect competition attracts some very bright minds, and the chances of emerging as the major player in that market are just as good or just as bad as the chances of entering a perfectly competitive market and extracting consistent abnormal profits. Or going back to my original post, I wrote that your "skill, intelligence, emotional control etc. simply don't matter in perfectly competitive markets". That's true only as much as they don't matter in any kind of market when we consider the probability of discovering or penetrating that market.
That means that essentially you have the same chance of success in whatever field you go. It would make no difference how many competitors you have, the competition is always there. The choice should only be determined by what you love to do, and if trading is the game you love, then by all means go ahead and gain as much experience as possible and accept what the market will give you in return. I know that to most of you this would seem pretty obvious, but I really needed to get this "prefect competition" argument out of my way. And I really didn't know how when I started the other thread despite my experience in the market up to that point. I appreciate that you actually bothered to read my thoughts and didn't just accuse me of heresy. My logic was flawed but I am glad I found a way out. I hope I am not wrong this time again
That's why I consider him more a philosopher than a trader.