Interview with a Hedge Fund Manager

… if you assess the attractiveness of a trade based on historical data from a time when people weren’t really actively doing that trade, and then suddenly everybody’s doing that trade, the behavior of the trade will be different. And if you’re trained the same way as everybody else, in general you’re all going to behave the same. And when everyone behaves the same, that makes trades a lot riskier: everybody’s buying at the same time, you get bubbles, everybody’s selling at the same time, you get crashes.

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What tends to happen in financial markets, is bad things happen when you really divorce the people who take the risk from the people who understand the risk.

n+1 magazine courtesy digital christian