Nassim Taleb, renowned for his work “Black Swan: The Impact of the Highly Improbable”, famously suggested that having early business news would actually ruin an investor within a year. New research, initiated by Taleb’s comment, seems to support his assertion.
The experiment, named the Crystal Ball Trading Challenge, involved 118 finance-educated young adults, who were given a $50 starting investment to play the market using US stocks and bonds. They were given the advantage of seeing tomorrow’s Wall Street Journal today, albeit without the stock and bond prices. Despite this women’s average, the results weren’t impressive, with half losing money and one in six fully depleting their funds. The overall trading trend showed the right decision was just a toss-up. For reference, there were 1,500 additional participants who played for free, and they did even worse, losing an average of 30% of their investment and over a third of them losing everything.
However, before we dismiss advanced news as irrelevant, it is important to note that five seasoned macro traders who also took part in the experiment ended up with significant profits. The key appeared to lie in the sizing of their trades, with knowledgeable traders increasing their stake when chances were in their favour, while other participants lacked a clear strategy.
If you fancy pitting your skills against this trading challenge, visit https://elmwealth.com/crystal-ball-challenge.