Let me try to summarize his position:
"I am well aware that some markets do show trends (in retrospect), and allow back tested systems to work. But merely because it worked back tested, why should the markets be so kind as to allow those who can draw a straight line between two points to make money in the future. Mr. Bacon would argue against it in the field of horse racing. Presumably the wisdom of the market is at least equal to the deceptive practices of the trainers and horsemen."
He doesnt deny that there are studies that capture trends(like momentum studies), or the Covel system. He argues that
-One can't be very confident those results didnt come from randomness
-Even if they didn't, one can't be confident the market wont close out that easy money opportunity and the system will stop working
Well, I cant argue with that, the first one is a mathematical reality and the 2nd one is also true, systems eventually stop working, system creators will agree with that. For instance I'm quite skeptical of the 'carry trade' inneficiency, I can't see no reason why higher yielding currencies should be able to outperform lower yielding ones forever, the studies show that has been the case. However that could change
There is the 'human nature' argument, that says those inneficiencies reflect innate human flaws and thats why the inneficiency wont ever close. However the other side of that is that, the flaw doesnt have to be corrected for most people, only in certain amount of very rich individuals.
For instance it only takes one very large hedge fund run by someone with less flaws(say John Paulson) to offset thousands of flawled retail traders. That is because the buying power of the non-flawed investor exceeds the one from an individual flawled retail investor by many times
"I am well aware that some markets do show trends (in retrospect), and allow back tested systems to work. But merely because it worked back tested, why should the markets be so kind as to allow those who can draw a straight line between two points to make money in the future. Mr. Bacon would argue against it in the field of horse racing. Presumably the wisdom of the market is at least equal to the deceptive practices of the trainers and horsemen."
He doesnt deny that there are studies that capture trends(like momentum studies), or the Covel system. He argues that
-One can't be very confident those results didnt come from randomness
-Even if they didn't, one can't be confident the market wont close out that easy money opportunity and the system will stop working
Well, I cant argue with that, the first one is a mathematical reality and the 2nd one is also true, systems eventually stop working, system creators will agree with that. For instance I'm quite skeptical of the 'carry trade' inneficiency, I can't see no reason why higher yielding currencies should be able to outperform lower yielding ones forever, the studies show that has been the case. However that could change
There is the 'human nature' argument, that says those inneficiencies reflect innate human flaws and thats why the inneficiency wont ever close. However the other side of that is that, the flaw doesnt have to be corrected for most people, only in certain amount of very rich individuals.
For instance it only takes one very large hedge fund run by someone with less flaws(say John Paulson) to offset thousands of flawled retail traders. That is because the buying power of the non-flawed investor exceeds the one from an individual flawled retail investor by many times
