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Blame Game

Trend followers are sometimes accused of throwing the markets into disarray. Whenever a stock tanks, bubble bursts or a scandal hits, winning traders catch blame. The blame is never affixed to the little old lady in Omaha who thought Drugstore.com would replace WalMart, and consequently lost her life savings gambling on dot-coms. No one wants to take responsibility for their own losses, and who better to target than the winners when “life isn’t fair.” Here are misconceptions that purportedly make trend followers the “bad guys”:

  • They trade derivatives: The vast majority of Trend Following trading is on regulated exchanges. We can all trade there. If we can all trade there, why are trend followers singled out?

  • They use leverage: No one thinks it’s odd that residential real estate is built on a foundation whereby you only have to put 10 percent down. Great traders use the tools at their disposal, one of which is leverage.

  • They cause worldwide panics: Trend followers do not generate trends or worldwide panics, they react to them.

  • They don’t invest. They just trade: The markets are for trading, not for investing. The markets reward winners, not losers.

  • Long Term Capital Management (LTCM) proved even the best traders will fail: LTCM proved that bad traders fail. Trend Following did not fail as proved in Chapter 4.[6]


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