WHY AREN’T THE most highly educated money managers also the most profitable? Because in the market, it doesn’t matter what you know, but what you do. All of the degrees, training and letters after a name don’t add up to much unless they’re put to good use when it counts.
The problem with being overeducated is that, too often, knowing too much prompts us not to think, but rather to assume. And because a trader must always focus on a security’s current action, the challenge is often not to know your history, but to be able to forget it. From my perspective, the best indicator of the market is the market. When we know (or think) too much, we often slip into the habit of assuming relationships in the market that don’t always hold.
For instance, many people have come to assume that stocks and bonds are negatively correlated; that is, when equities rise, bonds fall. And historically, that has often been the case. But as we noted in last week’s column, over the past few months both stocks and bonds have been strong. Traders have benefited from owning not one or the other, but both. (more…)