Ask Dr. Science - Is the price going up or down? Message Board

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Strategies & Market Trends : Ask Dr. Science - Is the price going up or down?

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To: INFO_DART who wrote ()	10/15/1998 9:35:00 PM
From: INFO_DART	Read Replies (1) of 4

I received this response via PM. According to your "Investment Style" and "Experience" you're trying to create something scalar isomorphic to the machine Merton and Scholes cranked. This is impossible because of visitations from chaos, a non-systematic translation out of the field of local possibilities into negative expected return states. The market maker's inventory position is perfectly quixotic and even if you new the instantaneous state of it, you would still need to be able to predict exogenous forces. If you could do that, you wouldn't need the machine. The nature of the markets is uncertain. The only positive expected return for non members is found in the strategy of buy and hold. It's boring and stupid. Thus, the market for the public is only a place to buy. Success comes by never selling. That means you shouldn't use it to perform a casino function, because your odds are better at Vegas. You can use the market to create machines that aren't vulnerable to the LTCM fiasco. The problem with them is that they have a return less than that of the perfect interest rate over the long term. So you do a lot of work for a return less than that of T-bonds.

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