Month: September 2016

“John McEnroe would lose 6-0, 6-0, 6-0 to today’s top ten players,” he said. “Literally, he couldn’t even play this game.” We were watching Djokovic dismantle Monfils at the US Open. “The history of competition is the study of knowledge and skill.” McEnroe’s skills have long since become common knowledge. “For decades, knowledge and skill were highly integrated in our industry. Which was probably correct, because if you had a lot of knowledge, you could use it to make money.” When the industry was smaller, and you heard a little something about what a central bank was going to do, you’d place your bet and cash in. When you gleaned insight into an earnings announcement, or a merger, you killed it. “The trader’s skill in and of itself was built upon the collection of knowledge ahead of others.” The early outsized returns of our industry greats were built upon this simple formula. “The problem is that this skill — the ability to collect information faster than the other guy — no longer has value, it’s no longer a skill.” Tighter regulations and instantaneous information dissemination has made it knowledge. “Like Martina Navratilova establishing the importance of fitness; the skills and habits she developed are now baseline requirements to compete.” While it’s far easier to collect knowledge than acquire skill, it’s often difficult to delineate the two; in others, in ourselves. We’re so consumed by collecting knowledge that we spend too little time honing skill. “Is there a skill to trading for non-computers? For emotional creatures with blood flowing through their veins? Is it even possible to engage in deliberate practice to become a great trader anymore?” he asked, shrugging. Pausing, reflecting. “After analyzing my biggest wins, I’ve discovered they were all great longer-term investment ideas disguised as trades. This is my skill.”
By Eric Peters – founder, CEO and CIO of One River Asset Management