On the Identity of Markets
Moneyball Book Review Analysis #5
On July 26, 2025, Forbes published a book review written by John Tamny of my book, The Moneyball Method. That review was also published on July 18, 2025, at RealClearMarkets.com. This brief essay will focus on a quote from the sixth paragraph of the Forbes review:
Markets themselves inform us about markets, including how best to hedge against the inevitable downturns in markets. In Shupe’s words, “market prices fluctuate, market leadership changes – and that is guaranteed.”
Much like the law of identity, a thing is what it is - and its characteristics define it. In fact, it is universally accepted that prices will fluctuate and market leadership will change. However, that doesn’t stop the interference by people who are motivated by unearned wealth and power.
Described collectively in my book as “the State,” when they gain control of educational institutions, their economic policy apparatus eventually becomes the “best practices” of business leaders and investment committees. As a result, money becomes debased, prices degraded and markets denigrated.
For the individual investor, this manifests itself in many ways, but regarding their asset allocation decisions, nearly every strategist and advisor will rationalize their own capital market assumptions (CMAs) as projections about performance that is out of their control.
In the previous essay, the range of historical returns for each asset class (standard deviation) and their relative price movements (correlation) were identified as risk management tools. But the third leg of the CMA stool - median return, is misused the most as a prediction about capital market performance. In fact, “best practices” compel money managers to invent their own median rate of return expectations for their favorite asset classes. That violates the law of identity.
Those take the form of conservative assumptions, forward-looking projections, regime-based assumptions, or the most recent historical data. And what do they have in common? They are lower than the historical data sets that define each asset class. And what’s wrong with that? Because reality must be obeyed, lower median return numbers require lower risk numbers. Consequently, the desire to be conservative will require greater lifestyle sacrifice or greater risk exposure by investors.
And to mitigate all the assumption errors, the asset allocator employs over diversification - which compounds the problem. And for what purpose? To beat the market. Or beat the market on a risk-adjusted basis. Or create a customized portfolio that conforms to the brutal complexity of the State’s regulatory apparatus and tax codes that reinforce them.
The simple and reliable solution for escaping these contradictions is to let markets inform us about markets. To learn more, please click the link below:
https://www.amazon.com/Moneyball-Method-Middle-Class-Manifesto-Objective/dp/1696009111/