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16 April, 2015

Living on the Edge

Many of the fortunes made in the early days of stock market investment were made through individuals or families knowing more than the rest of the market, perhaps the most famous example (although almost certainly apocryphal) relates to the Rothschild family taking advantage of the British victory at the Battle of Waterloo by spreading rumours to the contrary and buying when others sold at bargain prices.  This effort to know more and react faster continues to this day, with high speed traders trying to make money in the milliseconds they have before the wider market catches on, or insider knowledge being used to try and take advantage of price moves before information is announced publicly.  Obviously the latter is now illegal, but here Jim Parker, Vice President at Dimensional Fund Advisers explains why trying to game the markets and react faster than the 'next guy' is not a good strategy for the future, and why long term, efficient investment will eventually win out.

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by John Stirling