Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (94067)	1/15/2002 11:40:28 AM
From: JHP	Read Replies (1) \| Respond to of 132070

<<It also had some other great chapters, such as how to pick the fastest checkout line at the supermarket.>> ohh that`s easy take the line without me in it!

To: Knighty Tin who wrote (94067)	1/27/2002 8:35:21 PM
From: geewiz	Read Replies (1) \| Respond to of 132070

Michael, Although I messed up on the Feldman book - got the wrong author, one interesting book I did get for the holidays was Fooled By Randomness by Nassim Taleb. He sounds like he could hang out on some of our bear watering holes around here. (pardon the typos) " The wise man listens to meaning, the fool only gets the noise......I thought hard and long on how to explain with as little mathematics as possible the difference between noise and meaning, and how to show why the time scale is important in judging an historical event. Let us manufacture a happily retired dentist, living in a pleasant sunny town. He is an excellent investor and expects to earn a return of 15% in excess of Treasury bills, with a 10%error rate per annum (volatility). A 15% return with a 10% volatility pe annum translates into a 93% probability of making money in any given year. But seen at a narrow time scale, this translates into a mere 50.02 % probability of making money over any given second (shown in table). Yet the dentist's heart will not tell him that. Being emotional he feels a pang with every loss...... Consider the situation where the dentist examines his portfolio only upon receiving the monthly account from the brokerage house. As 67% of his months will be positive, he incurs only four pangs of pain per annum and eight uplifting experiences. Now consider the dentist looking at his performance only every year ............ Viewing it from another angle, if we take the ratio of noise to what we call nonoise then we can make a few conclusions; Over a short time increment, one observes the variability of the portfolio, not returns. In other words, one sees the variance, little else. Our emotions are not designed to understand the point. The dentist did better when he dealt with monthly statements rather than real time data. The same methodology can explain why the news (high scale) is full of noise and why history (low scale) is largely stripped of it. This explains why I prefer not to read the newspaper, chitchat about the market, and when in a trading room, I frequent the mathematicians and secretaries, (catch that Mike) not the traders. It explains why it is better to read the Economist on Saturdays than read the Wall Street Journal every morning. Finally this explains why people who look too closely at randomness burn out, their emotions drained by the series of pangs they experience." page 57 - 59 NEIDERHOFFER, VICTORIAN GENTLEMAN "It is worth noting that finance has its Francis Bacon in the person of Victor Niederhoffer. He was the very first to stand against the cobweb of learning of the University of Chicago and the efficient market religion of the 1960's. In contrast with the scholasticism of financial theorists, he looked at data in search of anomalies - and found enough of them to make a successful career in randomness......... I have to admit that for all my intellectual disagreements with him I have been inspired by his empiricism and own him a large share of my intellectual growth. I experienced a jump in my trading style in 1996 when Victor blurted to me that any "testable" statement should be tested! Very obvious but I had not done it until then. His advice when straight home. A testable statement is one that can be broken down into quantitative components and subjected to statistical examination........... Although Victor and I trade in such an opposite manner that many of his trades end up in my inventory, I have a large measure of respect for him. He sells out-of-the-money options for a living, I buy them for a living. He tires to make a steady income, I prefer a lumpy and rare payoff." P. 101 -102 There's lots more in the book, very refreshing to step back and look at the big picture....