Do not confuse passive investing with trading, especially high frequency trading. Those that engage in high frequency trading without a relatively high degree of insight can still make huge profits. However, when these people encounter loss, they are generally incapable of properly handling it and lose big.
This is because of the nature of the relationship between fundamentals and price. Over the long run, prices generally converge with what the fundamentals demand. Most people with a decent business sense are capable of gauging fundamental fundamentals (yes, I repeated the word twice on purpose). Through a relatively passive, long term strategy, it is not too difficult to end up profitable or break-even using this approach; This is the approach that most people should take.
When it comes to short term, high frequency trading, price is motivated more heavily by other factors that are much more difficult to assess. Furthermore, exit and entry points generally need to be much more accurate. Assessing this information accurately on a *consistent* basis, and being able to derive a profitable execution plan requires far more insight than passive investing. In this approach, losses are encountered far more often, further exacerbating the problem of people not being prepared for loss.
"Complex" approaches to the market aren't put in place primarily to make profits; They are so that the losses can be handled, which in turn ultimately yield larger profits. After all, you can think of any profitable strategy as a sequence of trades, with the "bad" trades being eliminated or minimized. The value of insight when it comes to wealth is not primarily in the process of creating wealth - it lies in the ability to stay wealthy and replicate the process. Hence, a fool might find gold, but the smart man is always making money selling shovels.
Look into people that are profitable over a long term. You will find that the *majority* of these people are very thorough.
Last, but not least, companies tend to take the most profitable, efficient, minimal effort approach to decision making. If the notion that "Keep it simple is the most profitable trading strategy" were true in absolute terms, companies would not be offering 500k salaries for highly educated quants - they would just hire random people and save money. These people still try to keep it simple - it is just that their version of simplicity is leagues above what most people consider complex; More specifically, they choose "the simplest implementations of complex matters".
This is because of the nature of the relationship between fundamentals and price. Over the long run, prices generally converge with what the fundamentals demand. Most people with a decent business sense are capable of gauging fundamental fundamentals (yes, I repeated the word twice on purpose). Through a relatively passive, long term strategy, it is not too difficult to end up profitable or break-even using this approach; This is the approach that most people should take.
When it comes to short term, high frequency trading, price is motivated more heavily by other factors that are much more difficult to assess. Furthermore, exit and entry points generally need to be much more accurate. Assessing this information accurately on a *consistent* basis, and being able to derive a profitable execution plan requires far more insight than passive investing. In this approach, losses are encountered far more often, further exacerbating the problem of people not being prepared for loss.
"Complex" approaches to the market aren't put in place primarily to make profits; They are so that the losses can be handled, which in turn ultimately yield larger profits. After all, you can think of any profitable strategy as a sequence of trades, with the "bad" trades being eliminated or minimized. The value of insight when it comes to wealth is not primarily in the process of creating wealth - it lies in the ability to stay wealthy and replicate the process. Hence, a fool might find gold, but the smart man is always making money selling shovels.
Look into people that are profitable over a long term. You will find that the *majority* of these people are very thorough.
Last, but not least, companies tend to take the most profitable, efficient, minimal effort approach to decision making. If the notion that "Keep it simple is the most profitable trading strategy" were true in absolute terms, companies would not be offering 500k salaries for highly educated quants - they would just hire random people and save money. These people still try to keep it simple - it is just that their version of simplicity is leagues above what most people consider complex; More specifically, they choose "the simplest implementations of complex matters".
