The illusion of easy profit #IBOVESPA
By David Gotlib (Acertar na Mosca)
When a market opportunity shines like gold, Mosca is on alert, because the shine may be just an illusion. When I was at Planibanc, partner Luis Carlos Plaster called an exceptional opportunity a “massacre,” and that word was enough to get us going. Today, the market is more sophisticated, and a high-caliber academic study, “It's too Good to Be True” (Duarte et al., 2024), from Rice and USC universities, confirms: financial miracles do not exist. With scientific rigor, the research unmasks promises of extraordinary profits that seduce even the most experienced. Wealth is built with strategy, not with fairy tales. Let's analyze this lesson for you, who seeks to prosper without falling into traps.
A market that has evolved
In the past, market inefficiencies were so evident that, as my colleague at Planibanc, Emir Capez, used to say, the market should erect a monument to mega-speculators who barely mastered basic arithmetic. Operations like those that Plaster called “massacres” were common. Now, with a more complex market, these opportunities are rare. Even so, promises of “guaranteed” gains by supposed experts proliferate on social media. I always emphasize: every operation, without exception, is on a spectrum of risk and return, with possible gains and losses. It is up to the investor to evaluate carefully and not be fooled by dubious tips.
The study’s findings
Submitted to academic scrutiny, Too Good to Be True examined reports that offered almost magical returns. One study (Zhan et al., 2021) suggested that selecting stocks based on factors such as the company’s price or earnings yielded 2.4% per month, consistently, with risk indicators (Sharpe ratios) reaching 4. Another (Christoffersen et al., 2018) indicated that trading less liquid assets generated up to 3.4% per day. It seemed like a foolproof formula, but the researchers revealed the error: these numbers were inflated by data available only after the investment decision, as if it were possible to predict the future. In practice, this is not feasible.
The bias that deceives
Imagine putting together a portfolio today with information that you will only have tomorrow, it would be wonderful, but it is impossible, right? These reports used filters that eliminated negative results, such as investments that went wrong, based on future data. In technical terms, this is look-ahead bias. When recalculating using only information available at the time of the decision, profits collapsed: the 2.4% monthly drop to 0.4%, and the 3.4% daily, to 0.1%. Risk indicators, which seemed promising, plummeted to unattractive levels.
What really matters
The research also questions the belief that less liquid assets are an inexhaustible source of profits. In reality, this advantage is insignificant. Among the characteristics analyzed, only share price and cash reserves showed some relevance, but with limited impact. Another illustration from the study reinforces this conclusion, showing how strategies based on illiquidity lose strength when adjusted correctly.
With a strong methodology, the study makes it clear: the market does not offer shortcuts. As I always say, there is no “sure win”. Every operation carries risks, and promises of easy profits are, at the very least, suspicious.
Relevance for the investor
We are living in a time of optimism, with stock markets on the rise and artificial intelligence being touted as the next revolution. But euphoria is shaky ground. When everyone believes that wealth is within reach, it is time to be extra cautious. The supposed experts who promise quick fortunes are like sellers of magic potions: they seduce, but rarely deliver. The study reinforces my view: investing requires patience and discipline, not illusions.
How to protect yourself from illusions
For those who invest, whether in stocks, funds or bolder alternatives, my advice is straightforward: study before acting. Always ask: “Do these numbers reflect the data I would have at the time of the decision?” If the answer is uncertain, pause. Diversification is essential – never concentrate everything on a single bet. And be wary of promises that seem extraordinary. If a graph shows stratospheric returns, demand transparency about how it was made. The market rewards those who think, not those who dream.
A transformed market
If I were 30 years old today, even Plaster would need to review his vocabulary. The market has evolved, and the distortions of yesteryear are distant memories. But human ambition remains, and false prophets of profit know how to exploit it. Too Good to Be True, with its academic rigor, separates fact from fiction. It proves that there are no financial miracles, only informed choices between risk and return.
Technical Analysis
In the post “The dollar is near the roof”, I made the following comments about the IBOVESPA: “Mosca was waiting for the blue wave 4 to end to suggest a buy trade (I almost did, as I mentioned in this week’s post). However, this week’s movements did not form the five waves in smaller windows.” This morning, this finally happened, and my recommendation is to buy at the break of 137,812.
I did not mention in the post above that this chart is for a 1-hour window and is subject to configurations that may not be confirmed. This procedure requires monitoring compatible with this time unit, which means possible changes in position immediately. Yesterday, I almost closed this trade, but I decided to wait another day.
I will continue with the 1-hour window so that my position becomes clearer. As I highlighted in the chart below, the blue wave iv must have ended, and the stock market is heading towards the blue wave v. Otherwise, if it falls below 137,791, I will have to redo my assumptions. I will reestablish the stop loss at 138,293, which, if it occurs, will leave a small profit on the proposed trade.
This Brazilian stock market... only a hero can be successful!
Due to the holiday, Mosca will not publish posts on Thursday and Friday, returning normally next Monday. Today, the Fed's decision is scheduled, and it is expected to keep interest rates unchanged without surprises, according to the Deutsche Bank report. The document, signed by Jim Reid, highlights that the US economy appears to be in balance, with the federal funds rate at 4.3%, PCE inflation close to 2.1% and unemployment at 4.2%, in line with the Fed's targets.
The report suggests that the Fed should maintain a wait-and-see stance, with projections predicting only a cut in December. Matt Luzzetti, in a previous analysis, reinforces that the current rate of 4.3% appears to be the neutral level, with the economy showing surprising stability despite past shocks, such as the increase in tariffs in 2025 and banking crises in 2023.
Despite the apparent stability, uncertainties such as tariffs, tax disputes over the BBB package, geopolitical tensions in the Middle East, immigration reforms and regulatory changes can shake this balance. Thus, Deutsche Bank recommends a “wait and see” approach, and Mosca warns of the importance of caution, as clues in the Fed's Q&A section may bring new perspectives.
The BCB will also release its decision, and the market is divided on whether there will be another 25-point increase or whether the monetary authority will end the hike cycle.
The S&P 500 was at 6,003 at 1:30 p.m., up 0.34%; USDBRL at R$5.5031, unchanged; EURUSD at €1.1512, up 0.29%; and gold at US$3.391, unchanged.
Stay tuned!
Original Post: Click Here
This is not an investment recommendation.
About the Author of this Post: David Gotlib has 45 years of experience in investment management. An engineer from Polytechnic School of the University of São Paulo, he was one of the founders of the first Brazilian hedge fund in 1993 (AUM US$ 1 billion). Later, he was Managing Director of Deutsche Bank Asset Management (AUM R$ 2.2 billion) until the company was sold to Bradesco. He is currently the manager of his own investment portfolio and the author of the blog Acertar na Mosca, where, since 2011, he has shared his thoughts on the global economy and the financial market on a daily basis.