There are countless quotes, aphorisms, and bromides related to the world of trading. One of the best known is Joe Granville‘s: “If it’s obvious, it’s obviously wrong.”
Having lived with, considered, and occasionally applied this nugget of wisdom over the years, my conclusion is that what’s “wrong” is actually the quote itself. I believe its principal appeal is that it has that counter-intuitive, funny-because’s-it’s-ironically-true sensibility to it. Kind of like Mark Twain’s “….the coldest winter I ever spent was a summer in San Francisco.” Har de har har.
To be sure, there are some instances in the world of trading in which what seemed “obvious” turned out to be quite the opposite. For example, in the middle of January 1991, right at the deadline the United States and coalition forces had given Iraq to evacuate Kuwait or else they would be attacked, one would logically assume that a massive ground war would send oil prices sky-high. However, the moment the United States began attacking, oil prices begin to collapse, shocking, I’m sure, many a trader who thought that they were guaranteed profits once a hot war commenced.
Yet this, I think, is a rare exception. Oftentimes, when something is “obvious”, then it is also “right”. Let me take an example from my own hometown. It has nothing to do with trading, but it is definitely financially-related.
In the Spring of 2012, just before Facebook (NASDAQ:FB) went public, a local realtor took out full page ads in the newspaper telling people to buy houses he had for sale in East Palo Alto since “the Facebook Effect” would surely drive them up in price (East Palo Alto, incidentally, is sort of the “bad part” of town, and it had notoriously the highest per-capita murder rate in the country in the early 1990s, believe it or not).
So what the realtor was declaring seemed really obvious…that once Facebook went public, and the employees there were zillionaires, there would be a lot of demand for homes relatively close to the Facebook campus. The self-serving nature of the ad and the wisdom (?) of Joe Granville might compel a person to do nothing. But…surprise, surprise…the ad was exactly right, and one would have been wise to blindly follow the realtor’s advice and make, oh, about 300% (leveraged, no less) by buying up anything they could.
(Side note: I seriously had no idea it had gone up that much until I sought a chart for this post; now I’m even more disgusted with myself than ever for doing nothing!)
Suffice it to say that Granville was kind of the Prechter+Gartman of his day. Lots and lots of media time, and lots of lots of “the stock market is going to crash” pronouncements in the 1980s and 1990s (Spoiler Alert: they were all wrong). So don’t get too hung up this sage wisdom.
So at the end of February’s exciting first week, what was “obvious” to me was that (1) the S&P 500 would rebound sharply to about 2740 and (2) it would then fall to lower lows. Part (1) has happened almost perfectly, although we got a little bit higher than I had hoped. As for Part (2), I am plagued by Granville’s “wisdom” (flawed as it is) because, frankly, it would seem almost too easy (and obvious) for things to fall now. But that’s what I’m thinking.