How would you like to be in a showdown with the fastest gun this side of the Pecos? Just to make it interesting, let your opponent begin with his six-shooter loaded, while allowing yourself to load only after the other fellow shouts ‘Draw!’" — Martin Fridson
Markets trade on information. Each trade contains a tiny piece of information built into it. As long as there have been markets, there have been those who have tried to get an edge. Whoever could get the first news from a battlefield, of an oil discovery, or figure out that a company’s earnings were better than anyone expected could reap almost instant profits.
Edward Calahan invented the stock ticker — improved by Thomas Edison and Alfred Vail — just so JP Morgan could sit in midtown and get stock quotes from the New York Stock Exchange faster than anyone else.
Coffee and rumours
It is this process of digesting news and building it "into the price" that underlies the short-term movement of stock market prices. It’s only the future that matters. Once a fact is incorporated into a share price it becomes history, and you are unlikely to be able to make money from it.
Lloyds of London probably exemplifies the potential of the principle best.
It started out as a coffee house around 1688 and evolved into an insurance market for the simple reason that it was frequented by marine insurance brokers who went there for the coffee and stayed for the rumours.
By 1871, when The Society of Lloyd’s was formed, a sufficient number of them had learnt that if you wanted to buy the rumour and sell the fact, you had to be close enough to the source of the rumours (and, at times, the facts) to make the early trades.
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