Hucksters, Snake oil salesmen, and general forms of hornswaggling…

I was at the China International Capital Market Forum last Saturday, an about 75% very interesting conference, with many speakers who I’ve wanted to hear speak for a long time (I thought I liked Louis Kuijs, the head economist for the World Bank in Beijing, the best, but then I found out how much better Tarhan Feyzioglu, the resident representative for the IMF in Beijing, was!). Anyways, the final presentation, by a Mr. Joe DiNapoli, made me wonder if just sounding like a huckster means that you actually are a huckster.

Joe DiNapoli was described on the program as

“a veteran trader with over 40 years of solid market trading experience. Joe’s exhaustive investigations into displaced moving averages, his creation of the proprietary Oscillator Predictor and MACD predictor, and in particular, his practical and unique method of applying Fibonacci ratios to the price axis, makes him one of today’s most sought after experts… Joe continues to develop and deploy ‘high accuracy’ trading methods, using a combination of leading and lagging indicators in unique and innovative ways.”

So its obvious what he does, right? Oh… that’s not obvious at all is it… well let me translate it out of financial speak for you. After his presentation, I learned that what the program meant to say was:

Joe DiNapoli knows magic!

The guy is an expert on technical analysis, an investment strategy that claims to be able to tell the future direction of the market based on past prices. The problem with this theory is that it contradicts the “efficient market hypothesis” (past performance is no indication of future performance), which also happens to be the basis of modern economics. I refer you to wikipedia:

Technical analysis is widely used among traders and financial professionals, but is considered in academia to be pseudoscience^[2] or “voodoo finance;” it receives little or no direct support from academic sources and is considered akin to “astrology.”^[3] Academics such as Eugene Fama say the evidence for technical analysis is sparse and is inconsistent with the weak form of the generally-accepted efficient market hypothesis.^[4][5] Economist Burton Malkiel argues, “Technical analysis is an anathema to the academic world.” He further argues that under the weak form of the efficient market hypothesis, “…you cannot predict future stock prices from past stock prices.”^[6]

Now to be fair to Mr. DiNapoli, he did mention that technical analysis is controversial, but that it’s common practice (which implies, if all traders trade on similar principles, then there is something of a self fulfilling prophesy to some of these numbers). And he did also mention that 75% of technical analysis is total nonsense, while 15% is partial nonsense (I’m assuming though that his work is in the other 10%). But his hair definitely reinforced my belief that the man is a huckster…

Big hair, pony-tail, trades from Bangkok for chrissake. Talked heavily like he was trying to sell something, and the Chinese guy who worked for his company that was in a roundtable discussion later, would never directly answer a question, but just start predicting the stock market years in advance.

The man seems to have people listening to him, and seem to have some credibility, even if its credibility in a pseudo-science. But he talked and looked like a used-car salesman, with the following of a cult leader.

And he was talking to some of the most important financial people in China…

Sigh…

Bradley Gardner