My Secret Weapon
Wall Street could benefit from diversity—intellectual diversity.
You rarely see people who challenge the status quo under the premise that today’s ideas will have far-reaching unintended consequences.
Answers: You Ain’t Got The Answers
“Peter, what’s your edge?”
I get asked this often and to explain it in layman terms.
Beat the Beat
A way to demonstrate the edge is to use the benchmark index and beat the benchmark itself, as opposed to simply buying and holding or identifying an outlier.
Identifying what is currently the norm or neutral allows one to understand what is different and trending.
This litmus test is vital to ensure scalability or mechanization of the approach.
Yes, there are many ad hoc uncovered and undiscovered opportunities. Yet, as a constituent of the broader benchmark one is trying to beat, it should be understanding those variables relative to the benchmark that allow one to outperform the market.
A practitioner should demonstrate all this insight on the index before looking at isolated opportunities. It’s akin to buying metals or energy stocks and having an idea about the underlying commodity.
I wrote to ValueHive’s host the following on X:
What is so grossly undervalued with markets near all-time highs that won’t get shattered in the instance of a systemic risk? Does this not imply that markets need to make greater highs for the laggards to have a chance to catch up?
This statement asserts that stocks correlate with the market 70% of the time, and laggards persist for specific reasons. Over the last two decades, emerging markets have often behaved like laggards. However, when they begin to catch up to developed markets, the market then subsequently crashes, as seen during events like the Global Financial Crisis (GFC) and the Covid pandemic.
The cycles are moving faster than before due to faster price discovery through information and market action entropy. This implies that value has less time to turn into fruition.
This means that your ability to accurately predict market trends and make informed investment decisions allows you to outperform the benchmark index itself, which is typically a standard measure of market performance.
Such an edge often involves superior analytical skills.
Here is what my screen looks like…
All these ideas are rooted in the central limit theorem. This theorem states that the distribution of samples tends to form a normal distribution as size or time increases, irrespective of the initial conditions.
This allows one to see potential deterministic developments in the market, such as the close, or more importantly, the trend.
Till next time,