Clayton Christensen

The Innovator's Dilemma by Clayton M. Christensen is a great read for Trend Followers. Christensen recently offered in an interview:

They were looking at the book [Innovator's Dilemma] for answers rather than for understanding. They were saying 'tell me what to do' as opposed to 'help me understand so I can decide what to do.'...[Wall Street analysts] are theory-free investors. All they can do is react to the numbers. But the numbers they react to are measures of past performance, not future performance. That's why they go in big herds. Wall Street professionals and business consultants have enshrined as a virtue the notion that you should be data-driven. That's at the root of the inability of companies to take action in a timely way.

Christensen clearly outlines a key tenet of the Trend Following mindset. Trend Following is never based on having all the data. It's based on odds and reaction. Think about it. If you look at a stock such as Yahoo and witness its great rise and decline you can say 'you should have bought here and sold there'. But isn't that 20/20 hindsight? No, you simply needed a trading plan of attack before the great rise up and great decline down.

What Christensen is driving at is the notion that you must be able to make decisions in the face of not knowing how the trend will look when it's all over. You must have a plan to act early before trend direction is obvious to the masses. You must be set and ready to go (and entered) long before the TV watchers decide the trend is underway and jump on. Those people are always a day late and a dollar short. Those people are the herds Christensen alludes to. Those people don't make the money, they lose it. And given that trading is a zero-sum game, the money that those people lose goes directly to the other people with the plans of attack designed to win their losses.