A man and his signals

Once upon a time there was an egotistical man who sold subscriptions to a stock market research product based on the premise that his “signals” could tell people when to buy and sell. To get attention for his service, he railed regularly against the Wall Street establishment, whom he referred to derisively as outdated, hopeless “bagholders”. He had come out of the woodwork and shot to fame during the late stages of a grueling bear market, at a time when the American public was willing to believe that it was a good idea to rapidly buy and sell stocks on a daily basis. He’d sold a ton of subscriptions for his service and, for a little while, had a lot of people fooled – regular investors, professional traders and the media too. And then it all fell apart.

That man’s name was Joe Granville, that era was the late 1970’s, early 1980’s.

One of the benefits of studying the history of markets is that you quickly realize that everything is a rerun. We’ve seen it all before, though the people, places, products and circumstances change. The only thing an old trick needs to make a comeback is a new generation of investors, a fresh crop of naifs, willing to suspend disbelief and invest themselves in magical concepts.

At the peak of his popularity in 1981, Joe Granville had 16,000 active subscribers paying him between $250 and $3000 a year for his signals. He had single-handedly crashed the market by issuing a real-time sell alert to his subscribers via voice mail message in the middle of the night that January. People Magazine sent a reporter to debunk his ability to call the direction of stocks that April but he ended up charming her instead, garnering quite an advertisement for his genius in the process.

Central to Granville’s business model was the endless repetition about how his so-called “signals” enabled him to read the markets like no one else, buying and selling individual stocks based on a formula of different fundamental and technical metrics that he alone possessed. The prestigious Journal of Portfolio Management invited him in to discuss these signals with their quants to see if there was any merit to this systematic approach. Granville, the consummate showman, didn’t shy away. He sat there for hours laying out all of the various signals he used to divine the market’s message. The quants published the results of their backtesting and found that it was all gobbledygook. Granville just used the article to promote himself even further, the sheer fact that they were even talking about him was all he needed.

In the end, Granville’s signals were proven to be ineffective and the secular bull market that began in 1982 had left him behind. He never made the bullish turn, digging his heels in on a bearish call, and his subscriber base dwindled thereafter. He publicly announced that he’d failed because he had abandoned his old signals in lieu of new signals and, as such, he was going back to the original recipe. By then, it was already too late, the magic spell had worn off.

Mark Hulbert, who’s been studying the most well-known market-timers for more than three decades, eventually concluded that the Granville Letter was among the worst of these services over the long haul. If Granville did truly possess a system with merit at some point, it was clearly not a system that was built to endure.

The term “system” implies a mechanical approach to investing or trading, and perhaps there are some mechanical systems that are better than others. Unfortunately, investing will never be able to be reduced to sheer mechanics, at least not in the Newtonian sense of the word. In his book, Investing: The Last Liberal Art, author Robert Hagstrom explains that markets are not mechanical systems, in the end, and do not obey set laws as in physics. You can run one of Isaac Newton’s experiments one thousand times over and continue to get the same result – not so with markets comprised of millions of people and the infinite emotional variables that can never be reconciled on a spreadsheet. Markets are the opposite of mechanical, they are biological.

In mechanistic systems, small changes produce small effects, large changes produce large ones. It’s math. In a biological system, however, this construct cannot survive reality. Just as tiny changes in nature can produce massive mutations, so too can minor events have exponential impacts on financial markets. Thus, any “signals” one wants to employ must not only be able to identify significant events and pinpoint the timing of their occurrences, they must also be able to calculate the scale and scope of that event’s repercussions.

No one has a system or set of signals that can be relied upon to do that in all market environments.

No one ever has, no one ever will. Granville didn’t either.

Nor will any his modern-day successors.

 

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. خرید vpn پر سرعت commented on Sep 20

    vpn ایفون

    Fantastic website! I discovered it whilst surfing all around on Yahoo Information. Do you have any tips on how to get listed in Yahoo News? I have been making an attempt for a whilst but I never appear to get there! Cheers

  2. خرید وی پی ان commented on Sep 21

    vpn ایفون

    Each after in a even however we opt for blogs that we read through. Listed underneath are the most present internet sites that we choose for

  3. سرویس vpn commented on Sep 21

    vpn ایفون

    Many thanks for yet another informative web web site. The area else could I get that kind of info composed in these kinds of an perfect technique?I have a venture that I’m just now operating on, and I have been at the search outfor this sort of info.

  4. cheap land for sale in lagos commented on Sep 21

    cheap land for sale in lagos

    […]please pay a visit to the web pages we adhere to, including this a single, as it represents our picks in the web[…]

  5. خرید وی پی ان پر سرعت commented on Sep 22

    vpn ایفون

    Hey! I know this is fairly off topic but I was pondering which blog platform are you employing for this internet site? I’m acquiring sick and drained of WordPress due to the fact I’ve had issues with hackers and I’m seeking at alternatives for another…

  6. اکانت وی پی ان commented on Sep 23

    vpn ایفون

    Hey! I know this is relatively off subject but I was asking yourself which blog system are you using for this website? I’m getting unwell and drained of WordPress because I’ve experienced problems with hackers and I’m looking at alternatives for anothe…

  7. aaa replica commented on Sep 18

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2014/03/11/a-man-and-his-signals/ […]

  8. Immediate Edge Review commented on Sep 22

    … [Trackback]

    […] There you will find 83368 more Info to that Topic: thereformedbroker.com/2014/03/11/a-man-and-his-signals/ […]

  9. pinewswire commented on Sep 22

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2014/03/11/a-man-and-his-signals/ […]

  10. bitcoin era commented on Sep 30

    … [Trackback]

    […] Info on that Topic: thereformedbroker.com/2014/03/11/a-man-and-his-signals/ […]

  11. Intelligent Automation commented on Nov 13

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2014/03/11/a-man-and-his-signals/ […]

  12. cvv shop commented on Nov 16

    … [Trackback]

    […] Read More here to that Topic: thereformedbroker.com/2014/03/11/a-man-and-his-signals/ […]

  13. Red Bull Wholesale Suppliers commented on Dec 22

    … [Trackback]

    […] Find More Information here to that Topic: thereformedbroker.com/2014/03/11/a-man-and-his-signals/ […]

  14. dog food commented on Dec 30

    … [Trackback]

    […] There you will find 34620 more Information to that Topic: thereformedbroker.com/2014/03/11/a-man-and-his-signals/ […]