The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails

The Future Is Now

While it is important to look to the past to contextualize the stock market, it is vitally important to realize that the stock market is a discounting mechanism. That odd phrase means that the stock market, and therefore sophisticated investors, always focus on the future, on the known unknowns. The market continually assigns odds, or discounts, the outcome of various events. The purpose of life in the market is trying to discern today tomorrow’s price, and learning to recognize when fear and greed trump fundamentals. This bedrock fact, so commonly known by so many seasoned investors, is an unknown unknown for most others. Figuring out what tomorrow may bring is an all-consuming endeavor. At any moment, likely even now, thousands of computers are searching for invisible, profitable patterns hidden in trading data that exceed the computational ability of the human mind. Some investors are so determined to invest with an edge—some skill or piece of information that will give them an advantage over others—that they pursue potentially privileged information, as the 2011 trial of hedge fund manager Raj Rajaratnam proved. Rajaratnam, while working as Galleon Fund manager, used relationships with a Goldman Sachs board member and employees of technology companies to learn today tomorrow’s corporate news.

The market always looks forward. Financial news frequently looks backward. By the time news media write an article, or prepare a broadcast, the optimal opportunity to ...