Why You Can't Beat The Market (Even With Tomorrow’s News)

If I gave you a copy of tomorrow's Wall Street Journal 24 hours early, do you reckon you could beat the market? Well, that's the bet that the man who predicted the 2008 financial crisis made with another hedge fund manager, and the results of their experiment might be one of the most important things I've seen in over 15 years of investing. I'm James Helliwell, I'm a former professional trader, and in this video I'll show you exactly what they found, whether you can predict the market and actually make money, or if it's all just a bloody coin toss and we should just buy an ETF and settle for whatever the market gives us. What a sad reality that would be. So let me explain the study. You might have heard of Nicholas Taleb. He's the guy that wrote The Black Swan, which called out a lot of the things that led up to the GFC. So when he posted this on X, it caught everyone's attention. He was willing to bet that you couldn't beat the market even if you had tomorrow's news a full day in advance. Even by his standards, it was a bold prediction. So a hedge fund manager took him up on the bet. And there's a certain irony here because this guy was one of the founding partners of the world's biggest hedge fund back in the '90s. But that hedge fund was LTCM, the one that famously blew up and nearly took the entire financial system down with it in the process. So this was another risky bet for him. But he had a point to prove to Taleb. So in 2024, he began the experiment. He gathered 120 investors and he handed them the front page of the Wall Street Journal one day before it had been printed, and they could then trade stocks or bonds, long or short, even using leverage. So you might think it was like shooting fish in a barrel, especially for these guys who weren't exactly novices. The results tell a very different story. And once you understand what I'm gonna show you, you'll stop losing money trying to predict the market, especially when it comes to the news. I'm gonna show you the 3 pages from the Wall Street Journal exactly as the players saw, and I want you to call which way the market went. So the first one, March 2015. Biotech surging, new home sales are surging, and the economy's firming up. Which sounds pretty bullish, right? Well, the market fell and only 27% of the players with this news in their hands actually got it right. So on to the next one, August 2019. A solid jobs report, steady gains, and seemingly good news for the economy. So surely you're gonna go long stocks. Well, wrong again. Only 26% of the participants called it. Now for the last one, June 2020, and I remember this one personally when it came through. Rates are near zero, Tesla's flying, and a vaccine is on the way. You'd be buying this all day, right? But the market, of course, did the opposite. Stocks fell, and barely 1 in 6 of the players got it right. Now you might think that I've picked the worst 3 here, so here's all of it. Nearly 2,000 trades, again with tomorrow's news as it were in hand, and people were right just 51.5% of the time, which is basically a coin toss. And that's why trading the news is such a bad strategy. Even if you could predict the headlines, you can't predict how the market's going to react, meaning there's no edge here. And although some of the hedge fund guys did fare better in the sample, it was more to do with the position sizing than the actual direction of the bets. So how do these guys trade, and is there something we can copy that doesn't necessarily rely on the news at all? So what you're looking at is a map. You've got 4 quadrants: leading, weakening, lagging, and improving. So this is capturing the rotation, a bit like a clock, typically moving around clockwise. What we can see is that at the top Natural gas is leading, and at the bottom, crude oil is lagging. And a few weeks ago, this is the rotation that I was looking at. Natural gas, 1, 2, 3 weeks ago, had just crossed into leading. Crude oil, on the other hand, was one of the clear laggards, going from weakening into lagging. And these rotations play out across everything, not only commodities but also equities and some of the other stuff we'll look at a bit later on. So since the 1st of June the two have diverged. Even when all energy commodities might have gone up and might have gone down together on certain days, the divergence has continued. And that's how you can get such a smooth and clear trend in something like this. In this case, long natural gas, short crude oil. If we're to measure it from the beginning of the month, that's where we're getting that 30 to 40% move. So hopefully you can see how everything becomes much clearer when you're looking at the right kind of chart as opposed to the ones with all the fancy indicators on that ultimately get you nowhere. But what if you don't trade commodities and you just wanna stick to ETFs or maybe stocks? So what we first need to do is just move to the equity tab at the top, look at the sectors. What immediately stands out is that industrials are the ones crossing into leadership. And you'll see that it's broken to new highs in the last few days. Compared to the S&P though, the relative strength is all the more impressive. I want to see if there's something we could potentially play against. Energy we've already covered, but comms services could be one to look into. You can see that this has just been plummeting, and that's a surprise because this includes stocks like Google, Netflix, and some of the tech platforms— Meta— which you would have thought would be rallying along with tech and basically be amongst the leaders. But that's not the case. So if we were to take Industrials versus Comms, for example, this looks to have bottomed and it's been on a tear in the past few weeks. So this is exactly what the model's capturing. Now I know we said you might not want to short, so let's focus on the long side and see whether we can find some single stock ideas within Industrials. So the first way to do it is to look at the XLI ETF holdings. If we just scroll down You can see that at the top we have Caterpillar, for example, and the— say a picture tells a thousand words— and this chart surging to new highs and continuing this momentum now for a year, in fact, has got further support from the sector now leading. But another way you can do it is actually screen for stocks within the industrials sector. So at the top you've got the best ranked companies, those with the strongest fundamentals according to what I screen for. And down at the bottom you've got the opposite. We're going to select the industrial sector and actually set some of the parameters here— companies that are only in the top half of all of the stocks that we're looking at in this quality-focused universe. So Ametek is actually the stock that stands out. You can see the company's profile, the rating at the top, and then the fundamental footprint, if you like, across the 7 factors. And you can see how it excels on basically every metric. Now down at the bottom you've got a chart, but let's pull it up on TradingView and I'll put on a comparison against the S&P. Because this is a quality compounder, it has historically outperformed the S&P anyway. But now with the momentum behind it, the wind in its sails from the sector, that might contribute a further near-term catalyst. Now, of course, none of this is ever a recommendation or personal advice, just to be absolutely clear. This is how I approach the market, and these are the ideas that I'm discussing within the community for my members, which, as I say, link in the description. You can check out and get a 7-day free trial there. I'll see you on the other side of it. So we've seen why trading the news and trying to predict the market is a fool's game, and how the funds are actually looking at the market completely differently in terms of momentum. But understanding these rotations is just one part of the game, so watch this video next to get another edge in the market and maybe even rival Nassim Taleb's PB. Who knows?