What caught my eye this week.
How filthy rich would you be if you could see tomorrow’s newspapers today – and then trade on the back of your unfair insight?
Actually, many people could end up poorer.
At least that’s the takeaway of new research [1] by Victor Haghani and James White of Elm Partners Management.
They decided to investigate conjecture by Black Swan [2] author Nassim Nicholas Taleb [3] that knowing the news in advance wouldn’t help most people make money.
The Financial Times explains [4]:
Haghani and White devised a clever experiment to test out Taleb’s hunch: 118 ‘young adults trained in finance’ were given $50 and a copy of the front page of something called the Wall Street Journal, minus stock and bond prices, one day in advance.
The lab monkeys’ task was simple — to use their knowledge of the future to make as much money as possible by trading in the S&P 500 and a 30-year Treasury bond futures contract.
Participants were free to use as much leverage as they liked and asked to place bets on 15 different high-volatility days over the past 15 years, five of which coincided with big employment reports, five of which coincided with Fed announcements, and the other five of which were picked purely at random.
Now, if you’re a naughty active investor like me [5] you’re probably licking your lips in anticipation.
Seeing the future? Talk about edge [6]!
And yet the FT tells us:
- The average payout was just $51.62 per player, representing a weighted average return of 3.2%
- Just under half of players lost money
- 16% of players went bust
- Players guessed the direction of stocks and bonds correctly on 51.5% of the roughly 2,000 trades they made
Bloomberg adds (via Yahoo Finance [7]):
“It’s very humbling,” said Victor Haghani, who was a founding partner of Long-Term Capital Management.
“Even if you have the news in advance, it’s still really hard to do asset allocation or whatever with a high chance of being right, let alone not knowing what’s going to happen.”
Haghani was a Monevator reader back in the day. I’d love to think my co-blogger’s passive investing articles [8] added our two pence to the intellectual capital behind this research. 😉
Anyway if you’re the sort who doesn’t believe something until you’ve tried it for yourself then you can (a) join our Moguls membership [9] gang (and be sure to track [10] your returns!) and (b) play the same game over on the Elm Funds website [11].
Lie about let us know how you do in the comments below!
Have a great weekend.
From Monevator
What to do if you left it late to start investing – Monevator [12]
From the archive-ator: Bridging to FIRE with an ISA – Monevator [13]
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Banks must refund fraud in five days, but losses capped at £85,000 – BBC [14]
OECD lifts UK GDP outlook, but our inflation is still stickiest in G7 – Reuters [15]
Landlords ‘forced to sell up’ over UK’s energy upgrade plans – This Is Money [16]
London closes gap on New York as top global financial centre – Yahoo Finance [17]
The ‘affordable’ shared ownership homes costing residents half their wages – Guardian [18]
Labour reportedly considers watering down non-dom reforms – BBC [19]
Cult card game Cards Against Humanity [20] is suing SpaceX – The Verge [21]
[22]
How fast will active ETFs grow? – Morningstar [23]
Products and services
How to handle buying a leasehold property – Guardian [24]
Three lesser-known cash back sites to help you save when shopping – Which [25]
Get £100-£2,000 cashback when you open a SIPP with Interactive Investor [26] (T&Cs apply. Capital at risk) – Interactive Investor [26]
John Lewis price match: how it works – Be Clever With Your Cash [27]
How does Nationwide’s new £175 switching bonus compare? – Which [28]
Vanguard plans fresh push into active fixed-income market [Search result] – FT [29]
How to downsize your home successfully – This Is Money [30]
Open an account with low-cost platform InvestEngine via our link [31] and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine [31]
Is your energy bill right? – Be Clever With Your Cash [32]
Art deco homes for sale, in pictures – Guardian [33]
Comment and opinion
Lose all your money – Fortunes & Frictions [34]
Inflation-proofing pensions is no mean feat – FT [35]
Was Jack Bogle right about Smart Beta all along? – Morningstar [36]
Short-term investing is a long shot – Behavioural Investment [37]
Retail investors won on fees but they are losing on risk – Bloomberg via W.M. [38]
What it takes to work for longer – Morningstar [39]
Til stress do us part: money advice for couples – The Joint Account [40]
Factchecking the myth of Central Bank omnipotence – Musings on Markets [41]
U.S. markets mini-special
The U.S. now comprises >60% of global trackers but accounts for only 26% of GDP… – Verdad [42]
…and the ‘relentless’ rise continues – Sherwood [43]
Naughty corner: Active antics
Why quality stocks perform so well – CAIA [44]
Microstrategy is bad at timing the Bitcoin market – Sherwood [45]
New Softbank books mini-special
Thoughts on Gambling Man: The Wild Ride of Masayoshi Son [46] [Search result] – FT [47]
In Money Trap [48], an ex-Softbank exec revisits the madness – Semafor [49]
Kindle book bargains
What They Don’t Teach You About Money by Claer Barrett – £0.99 on Kindle [50]
Quit: The Power of Knowing When to Walk Away by Annie Duke – £0.99 on Kindle [51]
The Good Enough Job by Simon Stolzoff – £0.99 on Kindle [52]
Grit: The Power of Passion and Perseverance by Angela Duckworth – £0.99 on Kindle [53]
Environmental factors
Southern Water may ship water from Norway due to drought fears – Sky [54]
UK recycling rate falls to just 44%… – Guardian [55]
…but could a new £1bn recycling plant in Flintshire turn things around? – BBC [56]
The fight to save Sri Lanka’s natural flood buffers – BBC [57]
Electric car production falls despite 2035 combustion engine deadline – Sky [58]
An Australian oyster reef is revived – Hakai [59]
Robot overlord roundup
Israel clears chatbot to give buy/sell advice – Bloomberg via Advisor Hub [60]
DuoLingo’s CEO explains how the company harnesses AI – Sherwood [61]
Microsoft relaunches ‘privacy nightmare’ AI screenshot tool – BBC [62]
Enterprise philosophy and the first wave of AI – Stratechery [63]
OpenAI to remove non-profit control, give equity to Sam Altman – Reuters [64]
World’s first AI arts museum will open in Los Angeles in 2025 – SCMP [65]
Off our beat
LinkedIn has become an obsession for corporate top brass – Sherwood [66]
Where do music genres come from? – The Honest Broker [67]
Misinformed about misinformation – Tim Harford [68]
The extraordinary artist recluse rediscovered in Swindon – BBC [69]
How Zelda became a first-time protagonist in her own series – Polygon [70]
Never quite enough – Humble Dollar [71]
Do it your way – Morgan Housel [72]
And finally…
“It’s not hard. Stop thinking about what your money can buy. Start thinking about what your money can earn. And then think about what the money it earns can earn.”
– J.C. Collins, The Simple Path to Wealth [73]
Like these links? Subscribe [74] to get them every Friday. Note this article includes affiliate links, such as from Amazon [75] and Interactive Investor [76].