Face-off! Making a Fortune by Trading

With this article I am initiating a new series called "Face-off."  My mission is identifying and writing about the best sources on a topic — finding expertise and explaining arguments.  This is in sharp contrast to most others who purport to be experts on nearly everything.  By comparison, my claim is quite modest!

In this new series I plan to take a topic of interest and present opposing viewpoints.  I always review comments, but I am especially interested in reactions as I develop this theme.

Background:  The CFTC Takes Action

Several observers saw some humor in CFTC Chief Gary Gensler's testimony yesterday on  futures trading and insider information.  Matt Phillips has a nice piece calling it the "Eddie Murphy Rule" from the movie that everyone in the business loves, Trading Places.  Izabella Kaminska picked up the same theme in this article.

The Issue

Can an intelligent person using common sense make money trading?

What other qualifications or commitment might be required?

The Protagonists

Readers should understand that the protagonists in "Face-off" do not know that they are participants.  They have not seen the commentary of their putative opponent.  This is a device for making stark contrasts in opposing viewpoints about issues.  Anyone who is cited is most welcome to join in the discussion.  I guarantee a complete opportunity for rebuttal.  In fact, that would be helpful to everyone.

I identify opposing viewpoints and put them in stark contrast.

The Affirmative:  Lind-Waldock

Anyone watching financial television has seen the commercials from my local Chicago trading firm, Lind-Waldock.  Here at "A Dash" we think that futures trading is fine –making a positive contribution to market efficiency.  Futures are often more efficient than ETFs.  If you are good at trading futures, we have no objection to Lind-Waldock.

Are you good?  Very, very good?

The omnipresent commercials on financial television suggest that nearly anyone can trade futures for a profit.  (Click here to see the scenes in the gym, the airport, the office, etc.)  You do not need any information nor any analytical technique.  Forget about P/E ratios or even the most basic news.  You already know what you need to know don't you?  Don't you follow gold and oil?

It reminds me of the Eddie Murphy scene where the Duke brothers explain commodities.  Eddie has an intuitive feel for the markets on the breakfast plate.  The implication is that nearly anyone can trade successfully.


In similar fashion, the commercials suggest that you can make money trading without much work.  One of them shows a clueless guy and a smart-looking intelligent woman.  She assures him that he can focus on things he "knows about" like gold and crude oil.  He does not need to know about P/E ratios and CEO's.

Wow!  You can make a lot of money just based upon your current "feel of the market."

(Readers should check out Joe Weisenthal's excellent piece on this theme.)

The Negative:  Abnormal Returns

Providing a dose of reality for prospective traders we have some real heavyweights.

Abnormal Returns does one of their new focus pieces (very valuable — keep them coming) on trading.  Tadas skillfully leads the reader, citing two prior first-rate articles.  This piece pulls it all together, citing evidence from key authorities.  To understand, you really need to read the entire piece, but here are the key conclusions:

Before embarking on a sojourn into trading we need to
realize the odds are stacked against success.

And also….

The point in all of this is not to dissuade anyone from becoming an
active investor, or taking it to the extreme, a full-time trader.*  It
is helpful to recognize that many other people have tried, and failed,
to do what you are trying to accomplish.  Hopefully this gives you some
sense of the tough task ahead of you.  As they say, “forewarned is forearmed.”  Consider yourself warned.

Our Take

This debate is a confrontation between analysis and marketing.   A strong marketing campaign does not try to change opinion.  It identifies and appeals to people with a particular viewpoint.  Those who have a big research budget know what investors think.

My dirt-cheap method of doing market research is to watch the advertisements of the big guys.

The televised ads, exaggerating the trading skill of the average person, are extremely powerful.  By comparison, fewer people  — by a wide margin — read the excellent work at Abnormal Returns.

The Face-off is often an unfair fight.  The outcome may not be on the merits.  More contests to come — nominations welcome.

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  • tom brakke March 5, 2010  

    Nice idea, Jeff. I’m looking forward to more face-offs.

  • keithpiccirillo March 6, 2010  

    Abnormal returns is top shelf reading.
    Consider successful fund managers, bloggers and their best ideas.
    As to your “Face Off”, all of the gold buying/selling whirling around is a developing shoe shine stock advice event. The media implants latent seeds which fail to germinate.

  • Jim C March 7, 2010  

    Since the wedding rings I bought about 25 years ago were gold, obviously I know all about that. I eat quite a bit of bacon so pork bellies, check. Oil, well isn’t that used to make gas for cars? So that’s a check too.
    On the other hand knowing P/E ratios…well doesn’t that involve, like, division? Too hard.
    Hummm…this should be an easy one.

  • JimS March 9, 2010  

    “One [commercial] shows a clueless guy and a smart-looking intelligent woman.”
    Uh, kind of vague: isn’t that true of most commercials?

  • Moneymaker May 29, 2010  

    This is the first time I have ever read such a useful blog. I also write such articles about making money and social network strategies.

  • Cor June 20, 2010  

    Still the key with trading is discipline. Many traders who follow their rules and plans will succeed in the long run. The abnormal returns section highlights that the majority of traders will lose because they dont stick to their rules.

  • options trading October 13, 2010  

    Trading is not rocket science, things that you need is the ability to control your emotions and to select the right markets and profit. Many traders today are high school drop outs and making more money then those who has a 60k pa day job.

  • futures options August 22, 2012  

    I am wondering now the how soon to do the dramatic things.I do not believe we will escape the ruin of the euro.My work appears to be relativity stable,and I think the cold winds of January might be the time we see things start to go sour here.