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SocGen's Dylan Grice On The (F)utility Of Trading The News

Tyler Durden's picture




 

The 'other' of SocGen's strategist dynamic duo, Dylan Grice, chimes in with some off the beaten path observations on the (f)utility of following and trading the news. In experimenting with the impact of newsflow absence on one's trading record, reaches the Nassim Taleb conclusion that news "makes idiots of us because it gives us confidence, not insight." What Grice does find, however, is that living without news nonetheless is difficult as it removes the entertainment aspect of sub-stories spawned by any given news thread. His words: "Without the news, I was missing the joy of a good story." And for those who have not read "Fooled by Randomness", and find the topic interesting, we suggest going through Nassim Taleb's seminal book which does a far more in depth analysis on the topic. On the other hand, since the average Zero Hedge reader has the attention span of an HFT algorithm, here is Grice's abbreviated perspective. (Of course, since Grice is right, and news are fundamentally irrelevant, we sometimes wonder why we have any readers at all).

From Grice:

I've been on the road these past few weeks, marketing across Europe and Asia with Albert and Andy. And although I usually try to keep up with what's going on while I'm away, I rarely find the peace and quiet to sit down, read and think. My travel companions are a bad influence.

I still haven't caught up with my reading, but from what I can gather, nothing much has changed: the doom and gloom of Europe still stands in contrast to the shiny optimism of the miracle that is emerging Asia (it really is amazing what a little credit growth can do!); Japan's politicians trying to deal with Fukushima are still making their American counterparts look competent; the jasmine revolution is still stalled ....

I'm glad Harold Camping's prophecy that judgement day would be the 21st of May 2011 was wrong. With a poker-faced nonchalance that would make a broker blush he now claims that he only got his timing wrong, and that the world will now end  on 21st October (fear not readers, I've already suggested to senior management that we hire him!). Apparently, UK bookmakers William Hill were offering odds of 1/1,000,000 that he'd be right, and people took the bet, not quite thinking through the implications of being right.

Maybe that's where using the news to predict events gets you. It's something I've been thinking about recently because I've only just begun reading newspapers again, having been on a ‘news diet’ this past couple of months. In “Fooled by Randomness”  Nassim Taleb said the news makes idiots of us because it gives us confidence, not insight. Like a PhD in macroeconomic theory. So a couple of months ago I decided to experiment. I took Taleb's advice and restricted myself to just The Economist each week and the occasional blog, avoiding everything else.

And I came to the conclusion that Taleb is right: surprisingly, I didn't actually feel less informed; it made no difference to the performance of the pitifully small Grice retirement fund (which was unfortunate, some "performance" would have been nice!); it  made no difference to conversations I had with friends or family; to my overall sense of well being. I found that if anything was important it would find me. And reaction is easier than prediction.

But I also realised that I missed the news for its pure entertainment aspect. Finding out how sub-stories end after the fact without the suspense before was a bit like seeing only the football results on a Monday morning. I had as much information as anyone who watched the match, but I hadn't taken part in the richness of the journey, and the safe thrill of not knowing how it would all end. Without the news, I was missing the joy of a good story.

So I'm back reading the news again. I know it won't give me any particular competence at forecasting the big events, any more than watching the football will make me better at predicting the scores. I'm reading the news because I like to read the news (incidentally, after bragging a few months ago that I was top of our office fantasy football league, I ended up coming second behind Georgios Oikonomou, one of our quant gurus. I'm sure he has some cheat team selection algorithm though, and anyway, I still beat Albert!).

So treat the news for what it is. Read it, speculate about how stories will end, enjoy it. But be cautious about how much help it will be to you when investing. Writing about what things are worth might not make for as compelling reading, but I think it's actually far more important. So for the next few pages, let's have a look at the latest output from my equity valuation models.

We'll skip the next few pages as they are not news per-se, or a discussion thereof, and thus are not entertaining.

 

 

 

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Thu, 05/26/2011 - 15:43 | 1314083 nope-1004
nope-1004's picture

since the average Zero Hedge reader has the attention span of an HFT algorithm

 

I take offense to your comment that.......

 

......... what were we talking about again?

Don't touch my junk fellas.

 

Thu, 05/26/2011 - 16:16 | 1314215 Eric Cartman
Eric Cartman's picture

Someone touched your junk, it wasn't me!

Thu, 05/26/2011 - 16:26 | 1314248 NotApplicable
NotApplicable's picture

LOL, I missed that because I skipped the end of the paragraph after I read

"And for those who have not read 'Fooled by Randomness'".

Well, I've read it, and honestly, I don't have any spare milliseconds to waste rehashing.

Touché Tyler!

Thu, 05/26/2011 - 22:56 | 1315391 DeadFred
DeadFred's picture

"Fooled by Randomness" is one of my favorite books. I find myself referencing it all the time. It tells you more about the workings of your mind than you'll want to know.

Thu, 05/26/2011 - 15:48 | 1314090 ThisIsBob
ThisIsBob's picture

"News is for chumps."  (Joe Granville)

Thu, 05/26/2011 - 15:49 | 1314095 disabledvet
disabledvet's picture

"news" is irrelevant?  you mean "Fukushima really never happened," right?  (and neither did Libya, Afghanistan, QE, Healthcare, Erin Burnett...

Thu, 05/26/2011 - 15:52 | 1314109 Rynak
Rynak's picture

I think the point was that all the tiny details don't matter so much. I notice this myself in general regarding my life. I have no TV, no radio and do not read newspapers. About once a month, or when i get a hint that something big is happening in my daily life (others are still connected, so i'll get to hear important stuff anyways), i do a broad search on events.

I've now been doing this for years, and the result consistently has been that i am NOT less informed - and actually benefit from less noise.

Thu, 05/26/2011 - 15:59 | 1314152 tired1
tired1's picture

TV, radio and newspapers aren't news, just more and more blatant NewsSpeak. I find the only utility therein lies in figuring out which way the herd is being steered.

Thu, 05/26/2011 - 16:39 | 1314305 NotApplicable
NotApplicable's picture

That's the only reason I ever watch CNBS. And for MSM, I just watch the wire headlines which will run the same story all day long with an evolving headline (Bizarro World at its finest).

Thu, 05/26/2011 - 16:51 | 1314345 Jim Cramer
Jim Cramer's picture

That's interesting. I'll watch the weather but sometimes turn the "news" on and mute it to see what's happening. It would be better if the chicks were nude and the guys were being fucked by the chicks with dildos. Other than that the "news" hurts my head and makes me angry because these dipshits think they know what's going on. That would be interesting.....me and some "news" guy having a discussion about current events.

Thu, 05/26/2011 - 16:05 | 1314161 disabledvet
disabledvet's picture

"You miss nothing when you get nothing as well."  I won't argue with that.  I would say "there is a reason why the media is centered in New York like nowhere else in the world."  Just a thought of course.

Thu, 05/26/2011 - 16:53 | 1314364 Jim Cramer
Jim Cramer's picture

I can't tell you how many people from New York I've talked to and they literally think that's the only place anything happens and it's the center of the world. Fucking New Yorkers. One guy I visited with recently couldn't understand slang that those of us from the rest of the country (USA) used because he had never heard of such a thing. Stupid people. They don't get if a country attacks, first place is NYC, Terriosts...NYC......stupid stupid people. Sorry if I offend anyone but my guess is there are very few New Yorkers here???????

Thu, 05/26/2011 - 17:36 | 1314533 There is No Spoon
There is No Spoon's picture

I live in New York. Most people aren't like that but the ones that are won't stop talking. Also, a lot of people who don't live here like to talk about how they have some sort of connection to New York, how they visited, or used to live here, etc. They seem to think that a connection to nyc is somehow desirable or gives them some kind of credibility. Stupid doesn't stop at the Hudson. I don't get why we should know anyone's local slang though. Maybe I'm too stupid.

Thu, 05/26/2011 - 17:59 | 1314621 NotApplicable
NotApplicable's picture

Meh, fuggedaboutit.

Thu, 05/26/2011 - 16:22 | 1314227 Smiddywesson
Smiddywesson's picture

That's exactly what Teleb discusses in Black Swans.

I did that too, I get most of my info from ZH.

Now rather than a programmed shepeople who believes he knows everyting and thinks exactly the way CNBC wants him to think, I am a deprogrammed sheep who thinks the world has been being invaded by space aliens.  Just kidding, but who is safer in our society, the paranoid who questions everything and is hard to lure with "news stories" or the sheep who trust in the system?

I would rather think for myself and be completely ignorant about developments in American Idol.

Thu, 05/26/2011 - 16:28 | 1314255 NotApplicable
NotApplicable's picture

Fukushima can hardly be considered to be in the news, unless you count press releases stating what they knew weeks ago.

Thu, 05/26/2011 - 15:46 | 1314098 centerline
centerline's picture

Trade the news... LOL.  That has been dead for years.

Thu, 05/26/2011 - 15:47 | 1314101 LRC Fan
LRC Fan's picture

Same exact pattern as the past 2 weeks.  Drop like a rock right around 945, get stable for a bit, rocket up 75-125, fall off a cliff in the last 10 min. 

Thu, 05/26/2011 - 15:58 | 1314132 Boilermaker
Boilermaker's picture

You noticed that too?

Thu, 05/26/2011 - 16:23 | 1314234 Smiddywesson
Smiddywesson's picture

Probably a coincidence, wink.

Thu, 05/26/2011 - 16:44 | 1314312 dcb
dcb's picture

the have been a number of observations why thos happens. apparently there are a lot of taders who work early, leave come back.

I also think it is a robo setting.

I have tried to get ZH to figgure out how much you make if you in effect trade only certain parts of the day, usually two to three thirty. I don't have the comp power.

But since we live in a country where HFT is good, this crap is always going to happen. use the speed lines!!!!

Thu, 05/26/2011 - 15:47 | 1314102 Mercury
Mercury's picture

"Without the news, I was missing the joy of a good story."

There's Taleb's narrative fallacy in action right there...

Thu, 05/26/2011 - 15:52 | 1314108 LRC Fan
LRC Fan's picture

I think I've figured it out.

Bernanke takes his daily shits around 945 am and then again at 345.  I can picture it now...he tries to hold it in as long as he can, but comes up just short of the close.  Runs to take a quick dump and finds the markets down a good 35 pts.  Must suck. 

Thu, 05/26/2011 - 15:53 | 1314111 Diablo
Diablo's picture

Taleb's 'randomness' is a great book.

makes u wonder who are the real 'sheeple'; ZH fanboys, or those who read 'people' magazine and buy aapl cause they like the advertisement.

 

 

Thu, 05/26/2011 - 15:57 | 1314125 Dr. Engali
Dr. Engali's picture

The Economist provides news? That's news to me.

Thu, 05/26/2011 - 15:54 | 1314129 Boilermaker
Boilermaker's picture

REITs up 1.5% into the close.  Constantly bid directly upward all day.

Now, that's funny shit.  I don't care who you are.

Thu, 05/26/2011 - 16:58 | 1314384 Jim Cramer
Jim Cramer's picture

Real-estate is coming back my friend. Hours within The return of Jesus. Mark my words it's going to happen. REITS all the way. Lol.

Thu, 05/26/2011 - 15:58 | 1314131 RobotTrader
RobotTrader's picture

Looks like we are about to complete a 3x3 displaced moving average turn to the upside.

All technical trading algos are going to be buying all intraday dips from here on out.

Thu, 05/26/2011 - 16:00 | 1314144 SheepDog-One
SheepDog-One's picture

'From here on out'...or until tomorrow morning, whichever comes first.

Thu, 05/26/2011 - 17:03 | 1314392 Jim Cramer
Jim Cramer's picture

I figured out that robotraders account is an account for all the new financial advisors at Goldman sucks. They login and get bonuses based on their retarded posts.

This ones for you Robo. "Thanks for the tip. I'm all in on every dip going forward."

Thu, 05/26/2011 - 22:59 | 1315404 DeadFred
DeadFred's picture

They draw the charts the night before then the algos 'etch-a-sketch' the lines in the next day.

Thu, 05/26/2011 - 15:59 | 1314139 SheepDog-One
SheepDog-One's picture

Taleb should just read RoboTrader, he's got all the news on whatever consumer stock happens to pop a point and claims to be one of his 'long time portfolio stalwarts'...until it drops, then alas he hardly knew ye.

Thu, 05/26/2011 - 15:59 | 1314150 THE DORK OF CORK
THE DORK OF CORK's picture

Wake me up when its over.

www.youtube.com/watch?v=HtqB2XO9jtI

 

Thu, 05/26/2011 - 16:10 | 1314182 disabledvet
disabledvet's picture

i havn't had a good game of chess in years.

Thu, 05/26/2011 - 16:36 | 1314232 THE DORK OF CORK
THE DORK OF CORK's picture

Playing death for your life might give the motivation you crave - it would probably  stretch you to the limit.......

Thu, 05/26/2011 - 16:04 | 1314160 topcallingtroll
topcallingtroll's picture

Why do you have readers?

Because we also experience the joy of a good story.

Send this dude some money guys. He is not NPR nor PBS and this blog lives on donations.

The amount made from advertisers is a pittance.

Thu, 05/26/2011 - 16:06 | 1314168 slewie the pi-rat
slewie the pi-rat's picture

this is too fuking long!

Thu, 05/26/2011 - 16:07 | 1314175 Stormdancer
Stormdancer's picture

On the other hand, since the average Zero Hedge reader has the attention span of an HFT algorithm, here is Grice's abbreviated perspective. (Of course, since Grice is right, and news are fundamentally irrelevant, we sometimes wonder why we have any readers at all).

 

You have readers because you go far beyond news into the realm of information.   Since arriving at ZH my knowledge base has broadened, the number of information points at my command increased, perspectives come from more angles and my ability to anticipate, adapt, improvise and overcome is greatly enhanced.

Many thanks to ZH and Tyler's seemingly inexhaustible energy.  And I still have a long way to go before I can say I intimately understand even half of what is on display.  Workin' on it :).  I sometimes think I must be google's greatest bandwidth eater thanks to all the stuff I have to look up definitions for when reading ZH.

Thu, 05/26/2011 - 16:09 | 1314179 LRC Fan
LRC Fan's picture

LNKD down about 9% today.  Just above the opening price now.  Once it falls through that Bob Pisani will remind us that the initial price was $45 and so this 30% price drop is very bullish. 

Thu, 05/26/2011 - 16:23 | 1314250 NotApplicable
NotApplicable's picture

After all, it can't go to zero, right?

Thu, 05/26/2011 - 16:30 | 1314272 lizzy36
lizzy36's picture

That is what they said about Nortel.

Thu, 05/26/2011 - 16:42 | 1314320 NotApplicable
NotApplicable's picture

*glares at brand new, no longer supported Nortel phone on desk*

Thu, 05/26/2011 - 16:07 | 1314181 Eric Cartman
Eric Cartman's picture

The entertainment aspect, duh!

Thu, 05/26/2011 - 16:21 | 1314241 Smiddywesson
Smiddywesson's picture

I get all my news from RobotTrader.  

Just kidding RT, no offense.

Thu, 05/26/2011 - 16:25 | 1314245 I am a Man I am...
I am a Man I am Forty's picture

this doesn't make much sense to me, information is pretty important

Thu, 05/26/2011 - 16:39 | 1314289 NotApplicable
NotApplicable's picture

And so is disinformation, as well as timing.

The futility arises when one thinks incorrectly about such things, which is anybody who trades after believing they are well informed in a timely manner from the MSM.

Thu, 05/26/2011 - 23:07 | 1315426 DeadFred
DeadFred's picture

You have to have a knack to be a good MSM financial reporter, need to be a natural born 'sheep whisperer'.

Thu, 05/26/2011 - 16:32 | 1314269 lizzy36
lizzy36's picture

Knowing how to consume is the key.

Knowing how to filter 99% of the crap to find the 1% of gems.

Trusting the gem.

Quality vs. Quantity.

Because we experience the joy of great content.

Now where are the damn slide shows :P

Thu, 05/26/2011 - 16:38 | 1314300 Al89
Al89's picture

I tend to agree. Taleb makes the point that not enough time is spent thinking, too much is spent trying to process an endless stream of information (a lot of it contradictory). He doesn't say he doesn't follow the news, just that he only scans headlines on his bloomberg and nothing else (anything important enough will show up in that feed and he will check out factual stuff that is relevant to his trading). 

Good way of cutting out the noise which can impact upon trading performance. I'm not a pro trader but I'm experimenting with a tool called sharpreader (RSS feed). I have about 10 key sites linked to it and once a day I'll fire it up, check the headlines and only read factual pieces relevant to my trading. 

Time is much better spent thinking about the markets and trading strategies/researching them/reading books.

Thu, 05/26/2011 - 16:49 | 1314337 NotApplicable
NotApplicable's picture

I was with you up until your last sentence. Whenever I think about markets, the only thing I see is a casino. While I'm not against gambling per se, I can't see much value in trying to figure out how to beat the house.

Thu, 05/26/2011 - 17:02 | 1314397 Imminent Crucible
Imminent Crucible's picture

"we sometimes wonder why we have any readers at all"

Get real. We don't come here for the news; we come here for the snark.

Fri, 05/27/2011 - 02:01 | 1315654 GoinFawr
GoinFawr's picture

Bloody bleedin Welshman.

Fri, 05/27/2011 - 04:30 | 1315718 rune420
rune420's picture

I like Don Coxe's philosophy; Never trade the front page, trade the p. 16 story.

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