Trading is Hard to Predict: Why Try?

Consider this interesting interview with David Viniar, given by Adrian Cox, published in Bloomberg:

“This is a really hard industry to predict,” said David Viniar, Goldman’s chief financial officer, in an interview yesterday. “It’s so dependent on the market environment. While there’s a fair amount of transparency on investment banking and asset management, trading is very hard for analysts to predict.” Earnings per share at Morgan Stanley, Goldman, Lehman and Bear Stearns jumped by an average 38 percent during the past six quarters, compared with the same quarters a year earlier. “Every quarter, they blow through estimates and everyone wonders what’s going to happen going forward,” said Keith Davis, a Washington-based analyst at Farr, Miller & Washington, which oversees about $500 million and holds shares of Goldman. “The fear has been that rising interest rates are going to impact results going forward.” The toughest companies to forecast are in the brokerage, metals and paper industries, said Chuck Hill, president of Veritas et Lux LLC, an investment research firm in Boston. “I’d hate to be an analyst covering those areas,” said Hill, a former head of research at Thomson’s First Call financial-data services unit. “It’s like a blindfolded man throwing darts at a dartboard.”

Look at the last few sentences. Don’t they make you pause? Consider:

“I’d hate to be an analyst covering those areas…It’s like a blindfolded man throwing darts at a dartboard.”

Why not, like trend followers, use the market price as your decision cue? Trend followers don’t know anything about crop reports. They don’t know what OPEC will do. Do you think trend followers have an inside track on Oracle earnings? Of course they don’t — and they don’t need to. Trend followers are smart enough to realize the only way you could ever possibly cover such a broad array of markets is to have a common unit of measurement — the price.

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