Dabum thanks for the thoughtful reply. My use of Malkiel was rhetorical yet you appropriately expand on the notion and your points are quite germane.
The only evidence I need to refute Malkiel is the empirical evidence of the numerous traders living off their gains in the market and their use of TA in executing those trades. Malkiel's problem (IMHO) is that he approached all of these various 'theories' (FA, TA, etc.) as if each were a magic bullet. The fallacy of his argument lies in the expectation of some cookbook set of TA or FA that works every time and under all conditions. According to Malkiel, if a 'theory' did not perform well over vast lengths of time spanning numerous different market periods, then the theory was proved false.
Malkiel should have read Elder's book where he clearly points out that no 'system' works forever as the markets are always changing. Successful traders will detect these changes and adapt with them. Elder points out that this is the problem with black boxes, they work for a while, then the market adapts and the black box gets out of sync and quits working. Traders need to review their methods and adapt as well. [Perhaps this was the fate that befell Joseph Granville? Though Elder points out if one waits long enough, one's 'system' may come back in vogue!] But the key point of Elder is that markets are about crowd psychology, greed and fear; two criteria that lend themselves poorly to rigorous systemic consistency.
I cannot comment on Malkiel's motivations, nor any association with the Vanguard Funds. I do note however that Malkiel's theories of asset allocation, "risk management"/diversification and life cycle investing have become de rigueur. Your average Joe wandering into a brokerage house, whether he knows it or not, owes the whole process of asset allocation to Malkiel's work. After all, it is a great marketing tool for the houses and it has the safety of being well researched and published. I can just see the financial planner working through a worksheet to define risk tolerance and how much should be allocated between cash, bonds, money markets, annuities, etc. In fact, I have encountered variants of the Malkiel worksheets in my past wanderings through the brokerage world.
But one who decides to become a trader needs to shun 'conventional wisdom', learn to think for one's self, and learn to adjust and adapt to the markets. One step I have found useful is the self-evaluation techniques of Deel. His DDRL score is useful for not only an honest evaluation of one's trading performance but also scalable allocation, risk management, position size and the use/avoidance of leverage. Deel's methods emphasize trading within one's abilities, as objectively measured. There is no point in a rookie trader going way out on leverage, into high risk trades and using options, at least not until his performance is demonstrative of the ability to handle such. I like the tool Deel provides as an objective performance measure in the insight it might provide into personal investment selection, screens, timing, money management, self-discipline, risk management, competence and leverage. It provides a framework and rational to the concepts of position sizing, money management and risk.
H3 |
