Research Misleads in Bubble

On a hedge fund’s short selling amid the 1990s stock bubble, from Ponzi Regulation, chapter titled The Art of Persuasion: 

“There was a persistent misalignment between his research, which looked into the hazy horizon, and his trading, which targeted the immediate future. He traded as if he had insight about the here and now, when in fact he did not. Analysis showed that prices had run ahead of economic fundamentals; eventually prices would come back in line. But a likely tendency somewhere in the future does not tell you what to expect from one month to the next.   ………………

While neither fundamental nor technical analysis provided correct timing, these methods armed him with plenty of arguments to back his case. That he knew the eventual direction several years ahead concealed the fact that he was ignorant of what really mattered—when he sold a security, he had not the slightest idea what the market would do before he had to buy it back. The plethora of information he gathered obscured the disconnect between his predictions and trades, reassured him that he was in the right, that stocks would collapse next month, next quarter, no later than the turn of the year…..”

Ponzi Regulation 

Advertisement

Tags: Stock Market