<But meanwhile we had a good number of folks who had grand plans of being smarter than some other greater fool that they could then point to. Which pointing along the way was taking place in considerable volume on SI and other bulletin boards, although always directed with positive spin, as in "look how smart I am" versus the equivalent "look how dumb he is" that is necessary to zero the sum.>
Several times I've written my monkey post because this point fascinates me.
How can people think they are so smart when they see how smart everyone is on the opposite side of the trades? Worse still, knowing that there are people with multiple mathematics degrees, PhD style, operating neural net, quantum computing market-modelling high speed super-computers which make Deep Blue look dumb.
Those PhDs are doing that with the specific purpose of not only modelling human behaviour in the markets, but including in their models competing PhD, neural net, quantum computing super-computers. So it's a battle of mathematics in super-computers. It's a Goedelian ltn.lv problem of internal and external effects. None of them are outside the system so by changing themselves, they change the model and change others' models and they do it really fast like a crazy multi-dimensional multi-ball ping-pong match. The winning model cleans up!
There are external effect, such as a rocket crashing. The models probably detect that when the first sell order hits as a result of the first insider sneaking information to their cousin in Eketahuna. The model notices the little unpredicted selling lump in the model and immediately swarms all over that lump to determine the extent of the rocket crash. Maybe they aren't that good yet, but I wonder how good they are. The model would surf the lump. Load up some shares ahead of the lump if quick enough, or right behind it and see how far and fast it goes, doubling order sizes every nanosecond if the lump is growing quickly outside the expected internal-reaction model expectations.
Into this seething morass blunders J6P [me and you] with the bright idea of writing a few covered calls to arrange early retirement.
I argue that humans got the bump over our eyebrows by random variation in an eons-long quantum computing design of our DNA to cope with monkey-style life which involves an infinite array of random events. Our evolutionary history is built into our DNA.
We are not too bad at predicting future events based on things which we directly perceive and which are closely allied with our evolutionary history and earlier experiences, there being reasonable memory function and comparative function which enables us to identify a hungry tiger if we've been bitten before. Hence the proverb, once bitten, twice shy.
But there is still a very, very large element of luck, because there is always something new about which we are clueless. A butterfly can take off right now in Russia and we have no idea about it until the eye of the storm arrives in Florida and we think we are okay now. Many events are not quite as unknowable and random as that and we can flatter ourselves that we saw it coming.
Our problem is that we really have no way of knowing how much of what we do is luck and how much thanks to that great computer above our Neanderthal-looking eyebrows. I love those pictures of George W looking like a chimp [comparative photos of a chimp making the same expressions].
My monkey story in stocks is that if we get 1,000,000 monkeys and get them to select stocks which will go up, then after try number 1, there will be 500,000 who get it right. They'll figure this is pretty easy, and learn a bit about P:E ratios to improve their skill. Second try, there'll be 250,000 who get it right and they are now making real money. So they double up, buy a stock information newsletter and on the third try, 120,000 of them get it right again. 4th try, there are 60,000. 5th trade 30,000. 6th 15,000. 7th 7,500. 8th 3,000. 9th 1,500. 10th [monkeys are really arrogant by this stage and write long posts in SI] 700. 11th 350. 12th 120. 13th 60. 14th 30. 15th 15. 16th 7. 18th 3. 19th 2. 20th the top monkey has got 20 trades in a row right and they are the smartest little monkey which ever logged on and ranted at length about the benefits of CDMA and photonic phantasies to come in cyberspace.
But that monkey was totally lucky because it really didn't know what was going on but got addicted really fast to all the flashing pixels and the mountains of fruit, vegetables, wine, women and song he could buy.
But wait. I suspect that the smart alecky super-computers will upset the applecart. Monkeys don't just randomly buy and sell. They also create turbulence by irrational exuberance and irrational fear. A quantum computer could induce a little fear by selling off some stocks, to see how the model behaves. If it detects a panic reaction, it could perhaps precipitate a panic with a trigger selling, then buy heaps on the way down from the screeching monkeys. If competing models from stupid Pentium computers also panic, the Top Model will really rake in the profits.
Other than the P:E return on investment and decades long inflationary growth in the stock market due to money printing, which has been about 8% a year, it's a zero sum game, as you say. For every dollar won, there was a dollar lost.
I don't think it's wise to bet on the monkeys or the Pentiums. Monkeys might be smart and they might not. They have no idea how much of their success was due to their fine intellect and how much was due to random luck.
Okay, that's part two.
Mqurice
PS: Just for fun, on a quiet day, the top computer would create a bit of turbulence to see how everyone reacts. "Hey look at the Stanford guys' model running for cover... hahahaahh!! Losers...."
J6P says, "What the heck?!! QUALCOMM just dropped 3 bucks out of the blue. Anyone know why that was?" Jon Koplik sagely advises "More sellers than buyers". We all nod in agreement, bemused and befuddled. |
