The reason going against the mob works is that there is never enough money in the world for an efficient market hypothesis to actually move the market far enough to be efficient.  You did not have to be an expert to bet against the housing crisis.

The ontological problem for economists is that for the past 50 or so years, they have been trapped by the “efficient markets hypothesis” which posits that since experts know so much more about the market than you do it is impossible for an amateur to win against the market.  Not only that because experts are constantly repricing markets due to new knowledge even experts are unable to make money on the market any better than a monkey throwing a dart at a dartboard.

Recently in the last 5 or so years, economists have given up on the efficient market.  Unfortunately they have nothing to replace it.  Some think that the reason markets are inefficient is the “greater fool” theory.  An expert in the market knows a stock is mispriced but he might bet on it anyway on the theory that someone else will want to buy it from him for even more money.  Other economists feel that there are systemic errors in how stocks are priced and that the market is not necessarily that inefficient but that it is somehow given incorrect information.  Others have gone on to behavioral analysis of market pricing.

I don’t trust them.  They have been wrong for 50 years, they are all wrong now.  Economists don’t have skin in the game and don’t really understand what is going on.  What happens is that the market movers while they might be experts do not behave as such.  They are giant mutual fund buyers.  And it is ok to fail running your mutual fund but only as long as you fail the same way everyone else does.  Then you keep your job.  But if you go broke in a novel way, you get fired.  This creates a herd mentality pushing prices in all sorts of inefficient ways.

My feeling is that if you want to get a good grounding in how stocks operate you need to read nutty stock market operates like Jim Cramer.  Not an economist.

I also feel that someone like Cramer has a very poor history at picking stocks not because he is bad at picking them, but because he picks 20 or 30 stocks every single day.  You can’t get good performance if you have that many trades.

Ideally you want to pick and choose only those trades where you have a solid foundation.  Where you know the mob is in action.  And then act accordingly.  Perhaps an expert will have two or three solid plays per year.  Perhaps the greatest single trade in recent history is when George Soros made a billion dollars trading against the english pound.  Or mabe the guys who bet against the housing bubble. Were these incredibly smart trades?  Not really, if anything they were obvious enough that anyone could notice it.

What makes trades like this great are not the trades.

It’s sitting on your money and waiting for a golden opportunity.  And I don’t care how smart you are, this is a matter of emotion.  Traders are psychologically incapable of not doing trades and just waiting.

That’s why it doesn’t require expert training.  All it takes is something none of those experts and market manipulators have.  It requires patience so that you only make your bet when it’s a sure thing.

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