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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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12/15/04
The Right Questions, by James Sogi
With Google opening a whole new world of information with simple
queries, it is critical to ask the right questions. When Lexis Nexis
became accessible it changed the legal world. It allowed a small country
lawyer to compete on the same levels as the big city lawyers, and we
did, time and time again. However, when finding the right case and
legal authorities made the difference between winning and losing a case,
it highlights the necessity of asking and framing the right question to
find the right case using the search engine. In analyzing legal issues,
the first element of analysis is to "frame the issue" or in other words
to frame what is the question that is being decided. The goal is to
frame the issue so that the answer is favorable to your position which
is where rhetoric and science diverge.
When the Internet allowed
electronic brokerages, it allowed an investor to live in a rural area
and have access to price data and information currently rather than 3
days late as it was when print was the only information available. Again,
with all the information, the issue to out performance is asking the
right questions. What is the relevant data to predict price? As I
struggle with the statistical language "R"
to analyze price data, it
is readily apparent that the questions to ask and the specific way to
frame the questions are critically important. The power of Google is
the ease of asking questions and coming up with relevant answers from
such a large body of information. The power of R is certainly not its
ease, but rather its power to make custom queries and to manipulate the
data for ease of analysis. When framing statistical issues or framing a
hypothesis for scientific analysis the assertion must be capable of
being disproved. While this sounds odd, it is the heart of the
scientific method. This avoids relying on a trading hypothesis or
system that is plainly wrong, and which will result in losses. This
also enables the speculator to stop using a once successful strategy
when its effectiveness can be disproven through analysis and study,
rather than increasing trading losses.