As you will remember, a pair trade is a trade that goes prolonged one facet and brief the other with the notion of capturing the big difference in performance. One more way to frame my recent favorite pair trade is “Knowledge” vs “Emotion”.
It is my speculation that a species’ evolutionarily profitable psychological responses are codified in DNA as instincts. We also know that markets punish herd behavior, because the herd can be spooked, and therefore trusted to overreact in times of peak agitation. This is why I like to measure volatility and describe it with data in such a way as it is both stable sufficient for continuity and yet adaptive adequate to react to adjust in accord with deeper trends which are evolving beneath the floor of immediate observation
In this pair trade Buffett plays the function of wisdom, the protoypical smart uncle who has noticed it all, and is aware how to frame the dilemma and navigate via uncertainty. The newest, best ETF, the metaphorically exuberant youth in search of riches in the land of milk and honey, is represented by EEM (the emerging markets.
There is a time for each and every in human lifestyle cycle, in the passing of seasons, in the biking of markets. Would we truly say that the exuberance of youth must be minimize out of our life and encounter? exactly where would the ventures appear from? the entrepreneurship? knowledge is not everything, but it also has its time and location.
Just as tu van gia dinh can expand and experienced our judgement, so to can we carry different values and insights to bear as the market place morphs close to us.
This is evidently Buffett time, nonetheless you slice it.