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Gunnar Miller's avatar

Back in the late '80s in my first job on Wall Street, there was a mysterious group of about four people in an old vault on the 15th floor with the door permanently propped open, with the walls covered in huge sheets of plotter paper. Curious, I asked someone who they were.

"Those are the technical analysts, a.k.a. the chartists. They sit in that windowless vault all day and painstakingly draw out two-line graphs shifting the y-axis scales and x-axis timeframes until they find something that looks as though it's correlated enough to predict the future, and then they print it in a report."

I said, "but we're a fundamental shop that subscribes to the Random Walk Hypothesis https://en.wikipedia.org/wiki/Random_walk_hypothesis so why do we have these folks at all? Doesn't it send the wrong message to our clients who expect us to be coldly rational and facts-based?"

The response was: "Every other house has a small group of technical analyst tea leaf readers for the same reason that newspapers still print daily horoscopes ... it's entertainment."

The ultimate excuse seems to be that every trader I've ever met says technical analysis of very short term trends *does* have some value to gauge whether sell-offs are over- or under-done https://en.wikipedia.org/wiki/Head_and_shoulders_(chart_pattern) , but with what appeared to be the relative veracity of three-to-five-day weather forecasts in comparison to those for a whole year in an almanac.

Frohe Weihnachten.

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Pip McIntyre's avatar

"Lies, damned lies, and cherry-picked time series charts.", as Oscar Wilde said (or was it Franco Modigliani when he won Strictly Come Dancing?)

Nice post BTW.

Wishing you a Merry Bah Humbug

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