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Daily Speculations The Web Site of Victor Niederhoffer & Laurel Kenner Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter; a forum for us to use our meager abilities to make the world of specinvestments a better place. |
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6/15/04
James Lackey:
Get the Joke
I have spec list boxes for "Word of Vic", "My learning from day trading", a box called "Greatness" from spec posts, and this one, "Get the Joke." Here is a small collection from this year.
One thing I've noticed is that players who 'play to win' will have far more variable results, winning more prize money in Swiss tournaments but suffering great disasters too. Those who play 'not to lose', on the other hand, will be much more stable. They may win fewer tournaments but their results will be better on average.
I personally have always tended to play 'not to lose'; I'm not convinced about the merits of this approach but my temperament won't allow me to do otherwise. Now if only I could take the points I score in each tournament and compound them with the next, I'd feel fully vindicated." -- Nigel Davies
BUT this is in sharp contrast with the well documented decline in the variability of the aggregate U.S. economy. How to reconcile this? - goods markets have become more competitive. Competition between firms magnifies the effects of idiosyncratic productivity shocks, which helps explain the rise in firm volatility. At the same time, competitive pressures could induce firms to increase the frequency of their price adjustment, making the overall economy more resilient to aggregate demand shocks.
Implications for Economy:
Higher firm-level vol means typical firm is presumably more vulnerable to bankruptcy risk and thus needs to pay a higher default premium to sell bonds. Indeed, quality spreads tend to widen during periods of higher idiosyncratic risk, e.g., the bond market in the late 1990s, when yield spreads widened substantially despite the fact that investors were quite optimistic about the overall performance of the U.S. economy. This episode is less puzzling, however, if we take into account the dramatic increase." -- Tom Downing
Similarly 10 degrees Celsius sounds like a big jump when it's from 10 to 20degrees, though expressed 'properly', with a true 'baseline', in Kelvin, it's only about 3%. -- Steve Wisdom
"This is the sort of statement we often see and if it is calculated as most such statements are, that is the gain in said periods relative to the net in the index over the entire time under consideration, it is misleading. In that overall time interlude there are many days of gains and of losses.
If the net move is small, any one such day can be a large part of the total. It would be far more meaningful to total up all gains over periods of the length of the one being examined -weeks in this case- and then calculate the gains in said periods relative to that total. Given the general tendency noted, one should also include enough description so that is clear to a reader what one is referring to in the statement." Rudy Hauser
THE UNEXPECTED: Unless you are prepared to expect the unexpected, be prepared to expect the unexpected defeat.
HE ALSO SERVES..: The master knows exactly the right moment to do nothing
Country Index Av.Growth 93-01 Index 93-01
Singapore ST 6.0% -22%
Malaysia KLCI 5.3% -45%
South Korea KOSPI 5.5% -20%
Taiwan TWSE 5.0% -9%
Hong Kong HangSeng3.6% -4%
US S&P 500 3.5% 146%
Interestingly, the GDP growth rates for all the major countries (in Asia ex-Japan) were higher than that of the US market during this period. And what did the US market do? While Asia was floundering US equity market rose 146% between end 1993 and end 2001, even counting for the disasters of 2000 and 2001. This was a compounded annual growth rate of 12% per year.
On the other hand consider this. Between end 1968 and 1978 the US GDP grew a cumulative 37%. How did the S&P 500 fare? It notched up a gain of 7.5%. Then again, in the following 10 years (1978-1988), the real GDP grew 34% but the equity markets grew 189% while in the next 10 years (1988-1998), the real GDP grew 34% while the stock markets grew 343%. This decade will give us the same experience of 1968-1978.
While GDP shows a general upward drift, market swings hugely from one end to another. For instance, when there is over-investment in the real economy, GDP growth would be robust but corporate results could be stagnant leading to falling market. The apple of GDP growth cannot be compared to the orange of the market. -- Debashis Basu
I can't see how you could prosper as a trader over the long haul if you thought that the overriding influence on your p/l was randomness or 'luck'. What would be the point. Why would you work hard to find trades with good odds to compound your capital. As the Calvinists used to say, I believe that Providence shines on those who bring it forth. That seems to me the whole purpose of the list, to see how we can improve the odds in our speculations so that maybe, just maybe, a little providence will come our way.
So instead of pointing out why someone's good fortune (take your pick: Soros, Buffett, Mr Mercedes, Seykota or anyone else we occasionally disparage on this list) was a matter of good luck, wouldn't we be better off understanding how or why the odds may have been in their favor when they made such good trades and whether we can find a meal out of that. Or not. Maybe we will find they just took extraordinary risk to earn their returns, a risk level that some of us are not willing to accept.
One thing my time in service showed me was that the real reason why 'there are no atheists in foxholes' is that if you believe that there is no divine order of any sort, and that whether you live or die on the field of battle is left to pure random luck, you inevitably WILL do something stupid and get yourself killed. To survive you have to believe. In something. It seems to me that trading is no different. Just my $0.02 on a slow day." -- Tom Ryan
The savings rate data is useless. IIRC, it, for example, includes capital gains TAXES on the outflow side, but NOT the capital gains themselves in the inflow side.
The only purpose the data serves is to provide a statistical peg for doom-loving headline writers, and a jumpoff point for politicians looking to justify putting another kink in the tax code." -- George Zachar
This increasing gap over time between a linear processing curve and an exponentially changing condition curve creates an environment of increasing risk with time - learning or knowledge risk. If the environment becomes more demanding and complex than our understanding, there is the potential for misjudgment. the chaos put so to speak.
It is also likely that over long periods of time there are cycles of demand and learning risk. part of the reason for the exogenous non-linearity is that if you were to look at a system composed of many agents (like a market), you would get, at any snapshot of time, a distribution of demands from the system and a distribution of capacities of the ind'ls. As demands of the system increase faster than the capacity of the ind'ls, the system becomes more and more susceptible to instability. In a network of ind'ls where feedback exists, it is possible that a system may experience instability with a relatively low percentage of knowledge or learning impaired agents - say 20-30% of the total population. I need another corona. more later." -- Tom Ryan
The equation: Pg = (p/n)*128, where Pg = price/gallon, p = price, n = #
oz. in item container, and 128 = oz./gallon. The sizes of the containers
varied, so yes, it may be possible to buy some of these
items in bulk at a reduced price.
| Item | $/gallon |
| Silk Organic Soymilk | 5.98 |
| Diet 7Up | 2.63 |
| Liquid Coffeemate | 7.56 |
| Crystal Hot Sauce | 14.83 |
| Cardini Kalamata Salad Dressing | 30.62 |
| Bertolli Ex Virgin Olive Oil | 17.02 |
| Liquid Smoke | 54.08 |
| Heinz Ketchup | 11.08 |
| Hellmann's Mayonnaise | 13.16 |
| Pure Vanilla Extract | 382.72 |
| Dawn Dishwashing Liquid | 10.19 |
| Cermabrite Cleanser | 18.19 |
| Bloc-Aid Drain Cleaner | 12.00 |
| Fabreze Fabric Freshener | 18.85 |
| Renu Contact Lens Solution | 190.72 |
| Lagerfeld Cologne | 958.40 |
| Clear Eyes Eye Drops | 762.88 |
| Nivea for Men Q10 Lotion | 676.89 |
| Fiddlebrite Guitar Polish | 288.00 |
| Liquid Tide Detergent | 8.53 |
| Porter Glyptex Semigloss Enamel Paint | 44.95 |
| Liquid MiracleGro | 55.96 |
| Pennzoil 10W40 Motor Oil | 9.56 |
| Maker's Mark Bourbon | 71.89 |
So, what's the beef? We pony up daily for all these items, paying far more per gallon than we do for gasoline, and thinking nothing of it. Try as I may, as I survey this list I see nothing there that, at $2 or at $950 a gallon, produces enough energy to move my 3470 pound car 20 miles down the highway. given that, maybe two bucks a gallon, and/or $35/barrel, ain't a bad price after all." -- David Hillman
The final chapter is good -- it tells who makes money on Wall Street: "Those who trade legitimately in stocks; a commission house that buys and sells stocks as a trade, and does nothing else, must make money. Such men run no risks....Operators make money who buy in a panic. Few men in Wall Street can invest during a panic...They never buy on what is called a Bull market, but always when Stocks are low. ... Another class that make money buy without any referenced to the Street. They buy the stock and pay for it. They take it home and lock it up. It is their own. No broker can sell them out. They have no margin to lose. They bide their time and sell when they please.... Men make money on the street who are satisfied with small profits (Vic disagrees with this) Who loses money on Wall Street: all who are caught by a panic...those not initiated in the ways of the street...small dealers with friends who make purchases for them they couldn't afford.. "Industrious speculators, hard working, energetic persistent operators in Wall Street, fail. Industry and activity are not at a premium on the street. Cool operators, those who think twice before they act, make the money. But sharp, energetic men, who have come out on the street to make a fortune and intend to keep at it -- these men are sure to go under. They feel that they must do something all the time...Operators who deal in rumors lose money.... Some operators have no judgment of their own. They watch others. They believe the rumors flying about the street. They are the dupes of sharp, shrewd men, and seldom come to anything." how little things change. "
And still #1