This week, after I had given a talk at a university, I had dinner with Daniel Zizzo, one of my old tutors. He is a Professor of Economics and very interesting, and I had a good time. The week before, I had a coffee with a quant whom I know through a friend.
As so often when I talk to academics, on both occasions I felt a little dim. The reason is that academics talk about conclusions that they or others have drawn from their research. They know what seems to be supported by the facts, what is conjecture, and what seems to be ruled out by the current state of research. People who talk about beliefs they have formed on the basis of careful testing and decline to accept conjectures naturally seem clever (this is not to disparage Daniel or the quant, who really are brilliant). The problem for a trader, of course, is that adding a scientific fact to the corpus of human knowledge is a highly complex process and takes an enormous amount of work.
As a discretionary trader, one’s job is to trade the markets right now. My approach to doing that is to pull together the things I need to have a sound opinion — newsflow, theory, research, or whatever — as quickly and effectively as possible. I need conjectures. This process is messy and forever half-finished and it leads, by academic standards anyway, to messy, half-finished conclusions that are, however, timely and useful. My approach to building a trading process has been to start trading and construct one as I go along — it isn’t based on a set of research papers, but on an amalgam of everything I have read and experienced in the markets. It is not a permanent revolution, but it is not nice-and-tidy either.
I have consciously chosen this approach to understanding and trading the markets. I still think it is the only practical way of doing so that is also likely to be robust over a number of years. But I am wondering whether I can borrow anything more from the academic approach. Any ideas out there?