How does information influence trading and our NCAA tourney picks? My bracket is busted after the Kansas loss. For those of you who do not live in America, there is a college basketball tournament every March. It takes 65 qualifying teams, ranks them and sends them across the country to play in a single elimination tournament. The “best” teams play the “weakest” team. American’s always love the underdog and in those settings there are a lot of upsets, also known as Cinderella teams. That is why everyone has a bracket and the first weekends of the tournament the bars are full at noon on a Thursday and everyone is glued to the TV. Corporations lose billions in productivity and there are a lot of sick days used.
Like I said, my bracket is busted. I used the seeding to determine the winners (not even locations and records) and took what I picked up from some commentators. I thought Kansas was a lock that is what the commentators were saying. They won two years ago and so I figured they had enough experience. Pencil them in as the National Champions.
What does this have to do with trading? Well it is all about the information. I had little information about the teams. I had just enough to not take advantage of the randomness of the tournament and too little to make an intelligent decision. Technically speaking you have a 50% chance of getting the winning team right and making a tick on a trade. This assumes you have no knowledge or preconceived notions or prejudices when choosing to buy or sell or picking one team over another. The problem occurs in the space from random to knowledgeable. I knew just a little bit about some of the teams, enough to make me semi-confident in my choices, the danger zone. For example, Bill Self coach of Kansas has a history of losing to higher seeded teams. Had I known this I may have chosen differently. There are a lot of other factors too.
I knew enough to make assumptions based on part of the story, this “knowledge” gave me the feeling that I was going to be right or even confidence. There are stories of animals having better market returns than professional money managers. After looking at the market for years I don’t believe in the random walk theory, I believe in the random information theory.
If you are going to use information, gather as much as you can. Don’t manipulate the information to serve your purpose. I have Butler in my Final Four, another mistake whether they make it or not, because I picked them because I wanted to see an Indiana team make it to Indianapolis.
As always if you have questions leave me a message (312) 725-9121 email eli @ mytradingnet.com.