[paulpauper]

>Recently Taleb has brilliantly discussed in his successful books [15], [16] how chance and black swans rule our life, but also economy and financial market behavior beyond our personal and rational expectations or control. Actually, randomness enters in our everyday life although we hardly recognize it. Therefore, even without being skeptic as much as Taleb, one could easily claim that we often misunderstand phenomena around us and are fooled by apparent connections which are only due to fortuity. Economic systems are unavoidably affected by expectations, both present and past, since agents’ beliefs strongly influence their future dynamics. If today a very good expectation emerged about the performance of any security, everyone would try to buy it and this occurrence would imply an increase in its price. Then, tomorrow, this security would be priced higher than today, and this fact would just be the consequence of the market expectation itself. This deep dependence on expectations made financial economists try to build mechanisms to predict future assets prices. The aim of this study is precisely to check whether these mechanisms, which will be described in detail in the next sections, are more effective in predicting the market dynamics compared to a completely random strategy.

I think pundits, academics, experts etc. overestimate the randomness or unpredictability of markets and crowds. Consider this obvious thought experiment: given a choice between having to choose between a $10 bill or a $20 bill on the sidewalk, all else being equal, everyone will choose the $20.That is sorta how investing is. Quality beats crud. There is nothing mystical or unpredictable about it. Determining quality is subjective, but the FAANG index in which each company is worth at least $100 billion has pretty much beaten everything else since 2009.

Also a distinction should be made between fundamental analysis, quantitative analysis, and technical analysis (volume and chart patterns and readings). I think the the first is useful, as the out-performance of FAANG stocks shows. Quant strategies can also be very profitable. The alleged predictive power of technical analysis has long been debunked.

[myownpetard]

When investing in something like the FAANG index or Google you're not betting on how the companies will do. Predictions like "Google is going to do well in the future and continue to grow" are not useful for making investments.

You're making a bet that Google will do better than everyone else thinks it will. And even more than that. You're betting that it will do so by a wider margin and/or with a higher likelihood than the available alternative investments you could make with that same money.

And even more than that, you're betting that Google will do better than everyone thinks it will and that the market will acknowledge this the way that you expect and the price will adjust accordingly in a time frame that is relevant for your investment goals and solvency.

[ipaddr]

You are betting more money will come in from new investors or more money from existing shareholders. You are betting people won't sell.

You are not betting on what will think in the future because market forces are bigger than will.

[na85]

>but the FAANG index in which each company is worth at least $100 billion has pretty much beaten everything else since 2009.

The companies that have seen the largest growth, amid the longest bull market in history, have beaten everything else?

Isn't that pretty much a tautology?

[hbrav]

In this context it's usually called "survivorship bias".

[Root_Denied]

>the FAANG index in which each company is worth at least $100 billion has pretty much beaten everything else since 2009.

In some sense I think this speaks more to the way that the US regulatory framework allows dominant players in a given market segment to retain and reinforce their dominance.

You can argue that these type of investments are "quality" or "safe", but the reasoning behind that label isn't going to be based on any kind financial analysis. There's no path to dethroning these giants or constraining them in any significant way, and as a result they're insulated from market fluctuations that might crash the price of a smaller player.

That's all without going into the feedback loop of safe investments -> more investors -> higher price (or price stability) -> upgraded safety rating -> algorithmic rebalancing of index funds -> higher price -> etc.

[Aerroon]

They're also information technology companies. Maybe it shows just how of a part of daily life they are? The only ones whose I don't interact directly with (intentionally) on a daily basis are Apple and Facebook. For most people Facebook would be included in their daily use.

How many other companies are there that aren't IT related that you interact with on a daily basis? You might use your chair and toothbrush every day, but that doesn't require anything from the company that sold you the chair. Using Google does require Google's servers to respond though.

[sideshowb]

Tesco. I can't eat likes. Oil companies also, though I hate to admit it.

[chillacy]

I don't have the impression that Taleb's thesis is anything like choosing between two known valued bills on the ground. Maybe it would be more like:

"if you were going to hunt for $20 bills on the sidewalk, which park would you go to? Central Park always does pretty well but if you were to play 'double or nothing' for tomorrow's find, you couldn't guarantee that you'd find a $20 bill there just because you found one there yesterday."

[pessimizer]

> Consider this obvious thought experiment: given a choice between having to choose between a $10 bill or a $20 bill on the sidewalk, all else being equal, everyone will choose the $20.

All else is never equal. If you change this experiment slightly, you'll get a more interesting result. If there is a $10 bill and a $100 bill on the sidewalk, and you have to choose one to take and one that will return to its owner, most people will choose the $10. The $100 seems suspicious and dangerous (in a "mystical and unpredictable" way.)

Quality is determined by experience and instinct. The personal valuation of a $100 bill might drop below $10 with no added information, other than that all treasure looks less like treasure than a lot of trash does.

Suffice it to say that if there were a market that accurately labeled the values of everything it sold, it wouldn't be a very interesting market.

> the FAANG index in which each company is worth at least $100 billion has pretty much beaten everything else since 2009.

That's because the politics are affected by size. To big to fail is real.

[maybelsyrup]

> Consider this obvious thought experiment: given a choice between having to choose between a $10 bill or a $20 bill on the sidewalk, all else being equal, everyone will choose the $20.

Where's the experiment part?