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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: chowder who wrote (83801)	4/30/2007 8:52:11 PM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 206330

From my perspective, I don't have to beat the market. I have to beat me. i'm guessing you mean the battle to overcome the temptation to give into the instinct which wants to do the wrong thing at the wrong time. if so, i can relate. Although I consider myself a technical trader, I never look at the fundamentals, I don't use technical analysis the way most people do. that is probably a good thing. have you looked at this book? Evidence Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals amazon.com i have a copy, but haven't read it yet. i'm all for the scientific method application thingy, which seems to be glaringly absent from most discussions of TA (Niederhoffer has a less thorough critique in his essay "The Hydra Heads of Technical Analysis" in his book Practical Speculation). apparently the author tested 6000 technical analysis "rules" and found none of them work. or something like that. i'm not vouching for it or against. but may be worth a look-see... It's a very simple process that I have been able to duplicate over and over again. the thing about TA is, if there is a "simple process" that can be readily identified, then it should be readily identified by other people as well. once enough people know about it, it will be arbitraged away. so if in fact you have a money machine (which is what such a thing would be), i would be like Eddie Van Halen before Van Halen came out: i would turn your back to the audience so nobody can see how you manage to play "Eruption". With regard to skill, I suppose it would depend on how we define skill. here's one definition: "We calculate the average relative return value and relative return SD of each fund, from which we can calculate a Z value as sqrt(11)(avg/SD). Using a one tailed t test with10 degrees of freedom we can now calculate a p value. (For the purists among you, I used a population SD instead of the sample SD. This produces slightly lower p values, and thus militates slightly in favor of the funds.) "The "p value" is simply the probability that the result may have occurred by chance. A p value of 1 indicates that the result occurred almost certainly by chance, whereas a p of 0.05 means that there was only a 5% probability of chance occurrence... Since we're looking only at the best funds after the fact, we have to guard against "data mining." We do this by calculating the adjusted p value as (1-(1-p)^n). (where p is the unadjusted p value, and n the number of funds) Whew!" efficientfrontier.com what Bernstein finds is there is scant evidence of skill in investors. but he finds evidence of skill in baseball players, and even develops a prediction: "Take all of the NL batting champs for 1959-79, and look at the batting averages for those who played 11 more seasons after that." so, find the best batter each year, but let it be a batter who is young enough that we can "bet" on his future performance over a substantial (11-year) time period. this is not data mining, because we are looking at, basically, young batting champs, and "betting" that they will outperform going forward. indeed they do, to a ridiculous degree. What I do consider a skill is the ability to eliminate most emotion from the process. That takes skill, at least it did for me.* i think there could be something to that. obviously markets have a high element of irrationality to them. at some points (extremes, at least), this may present inefficiencies that can be exploited. "Buy when there's blood running in the streets" and all that. one of the best market calls i've seen (and had the privilege to receive) was a call to buy FCX the day after the Bali bombing. FCX traded down below $10 intraday that day, and i was buying. (the call was issued by the now-defunct Apogee Research, which was headed at the time by Eric Fry, of Agora fame.) Skill? I don't know. i don't know either. i mean, i don't think it's possible to "prove" investor skill in a statistically significant sense, as one could prove a batter's skill (or lack thereof). otoh, there is evidence of "lack of skill"--i.e., some investors are RELIABLY worse than average. it seems that if somebody is reliably worse than average, you could be above average just by fading them. but somehow that's not the case. it may be just that the provably bad investors simply lose money through excess transaction costs (spreads, etc.) and low-probability trades (the kind Taleb used to buy, LOL). at the end of the day, most individual investors (or traders, or however you define yourself) are more interested in absolute returns than in market benchmarks. it's little comfort to lose 10% of your PF when the market lost 25%. people would much rather make money year in, year out, relative to their personal wealth benchmarks.