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>One flaw in this line of thought: the markets exist to transfer money from
>the many to the few. When the "many" have the same method, then that method
>will stop making money.
The purpose of equity markets is to raise capital. If you *invest*
(generally buy and hold) broadly in US stocks, your returns will, with
utmost assurance, be as good (or bad) as the US economy.
The purpose of futures markets is to transfer risk, generally from hedgers
(commericials) to speculators. (A price discovery function is also
provided). A broadly diversified long term trend following program will
capture the inherent return of this risk transfer service. The size of the
hedger interest in the markets determines the demand for this risk transfer
service. The size of trend following interest determines the supply of risk
transfer service. Like any supply-demand relationship, the more trend
followers there are, the more hands in the pie so to speak, so each gets a
smaller piece. Until the crumbs are so small that trend followers looking
for extraordinary profits relative to risks taken leave the market. This
reduces the supply component for risk transfer services, and makes more pie
available for the remaining participants. In the long term perspective, the
risk-return profile of trend following will be comparable to any other
investment. All opportunities to make money compete with all other
opportunities. Like the freeway, if one lane is wide open, it doesn't stay
that way for long. Competition among profit making ventures ensures that
none is spectacularly profitable (relative to risk) for long.
You can try to make your fortune by being smarter than everybody else,
always trying to put your money into a scheme that isn't widely recognized
as an outlier on the risk/return graph. Extraordinarily difficult. The much
easier route that allows you to spend your life in much more worthy
pursuits, such as forgetting yourself in the service of your fellow human
beings, is to accept the reality that inherent returns *can* be relied on in
the long term and that returns you realize and how long you survive have
everything to do with the leverage you choose to bring to bear on inherent
returns.
Scott Hoffman
Issaquah, WA
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