Beating the Zero Sum Game

June 1st, 2016|Featured, Philosophy|

How do you beat the zero sum game?  You can’t change the fact that trading is a negative sum game with transactions costs.  The expected value of the overall global game is always going to be zero, relative to the benchmark.  But can you create a situation where the expected value of your local trading is positive?  The answer is “yes” - in several ways.   When people trade, they are fixated on looking for that big “up” or “down” trade.  That really only happens a few times a year, if they are lucky.  And they may need to get lucky [...]


May 22nd, 2016|Featured, Philosophy|

Have you ever seen Star Trek II: Wrath of Khan?  There’s a training simulation called the Kobayashi Maru, that is programmed so you can not win.  The goal is to test the captain in a high pressure scenario.  Our hero, James T. Kirk, becomes the only person to beat the Kobayashi Maru.  How did he do it?  He changed the conditions of the test.  He reprogrammed the simulation so it was possible to win.  He even got a commendation for original thinking.  Thus far, I have been discussing what seems like Mission Impossible.  But I want you to start thinking [...]

Trading vs Gambling

May 19th, 2016|Featured, Philosophy|

Since I brought up gambling so many times in the last Philosophy post, I want to discuss “trading” vs “gambling.”  In our society, traders are considered one of the “top” professions in the world, and “gamblers” are considered one of the worst.  This has always been curious to me because the line separating the two is extremely thin.  There are traders who I would consider “gamblers”, and there are gamblers who I would consider excellent risk-takers.  In fact, one of the big producers on JPM trading desk (made $100 million per year almost every year) used to say that he [...]

The Active Trading Test

May 13th, 2016|Featured, Philosophy|

I’m looking forward to sharing my thoughts on investing strategy with you, in the context of a negative sum game.  But first, a little “yes / no” test to make sure we are on the same page.  All other things being equal: When you go into a casino to play your favorite game, do you expect to win money? A colleague asks you if you want to flip a coin for $100 a flip.  Do you agree? You end up flipping and it comes up heads 10 times in a row.  Do you think the next flip is more likely to [...]

Taking Inventory

May 10th, 2016|Featured, Philosophy|

Let's delve a little deeper into your situation in the negative sum game.  Most individual traders are very myopic.  They think about the great “tools” they have with respect to their trading.  But what they should actually be thinking about are their tools relative to everyone else’s tools.  It’s a negative sum game!   The Competitors' Edge in a Negative Sum Game Take a step back and look at the battlefield.  Is what you have any better than anyone else’s?  The answer is “probably not” (vs anyone who matters).  In fact, from the previous post, you should realize that what you [...]

The Corollary to the Fundamental Truth of Trading:

May 5th, 2016|Featured, Philosophy|

For you to do well, someone else has to do poorly, relative to the benchmark.   It is a negative-sum game after all.  I am not going to touch “have everyone do worse, so I can do better.”  I suspect there are probably some prominent people out there who do this, but not enough to warrant spending more time on it than I already have.  So let’s just look at the game from a “be the best you can be” perspective. The major players. The next logical step is to look at the lay of the land, and figure out [...]

The Fundamental Truth of Trading:

May 5th, 2016|Featured, Philosophy|

Trading is a negative sum game, relative to a benchmark.  The Fundamental Truth of Trading is definitionally true for trading futures.   The benchmark for futures trading is zero.  For someone to make money, someone else has to lose money.  This would be a classic example of a zero sum game.  Trading futures is a negative sum game because of all the transactions costs.  If there were no transactions costs, and you added up the money made and lost trading futures by all participants, the sum would be zero.  My estimate is that there are over 3x as many losers as winners [...]