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You better watch out, You better not cry

There has been much talk on the Googlebox about us being saved by a Christmas rally and I thought what  an ideal topic for a chart. So I went and had a look at the average December gain for a variety of markets over the past 20 years and the results are below.

Screen Shot 2015-11-30 at 11.07.30 AMAs you can see the average December gain for our market is hardly anything to write home about. If interpreted literally (a dangerous thing to do with averages) it would mean that the All Ords would gain about 89 points from where it currently sits. However, averages are problematic and the December move could be anywhere between a loss of 2.6% to a gain of 6.1%. When looking at any set of numbers it is the dispersion of those numbers which conveys more information than simply using the average. Variance is important but often overlooked. So the statement “on average we have a rally in December” doesn’t really tell us much, whereas looking at the possible range of outcomes tells us a lot more about what might happen.

However, it is important to note that none of these numbers convey anything other than a bit of statistical mangling on my behalf. These numbers become a problem when they become part of peoples narratives and therefore part of their expectation. Expectation for traders is a problem because it involves a sense of ownership as to the outcome and it is ownership of  what is thought to be the right outcome.  As opposed to an understand as to all possible outcomes and what action might flow from the trader when one of those possible outcomes eventuates.


Its Not Just Students…

A year ago I received an invitation from the head of Counselling Services at a major university to join faculty and administrators for discussions about how to deal with the decline in resilience among students. At the first meeting, we learned that emergency calls to Counseling had more than doubled over the past five years. Students are increasingly seeking help for, and apparently having emotional crises over, problems of everyday life. Recent examples mentioned included a student who felt traumatized because her roommate had called her a “bitch” and two students who had sought counseling because they had seen a mouse in their off-campus apartment. The latter two also called the police, who kindly arrived and set a mousetrap for them.

Faculty at the meetings noted that students’ emotional fragility has become a serious problem when it comes to grading. Some said they had grown afraid to give low grades for poor performance, because of the subsequent emotional crises they would have to deal with in their offices. Many students, they said, now view a C, or sometimes even a B, as failure, and they interpret such “failure” as the end of the world. Faculty also noted an increased tendency for students to blame them (the faculty) for low grades—they weren’t explicit enough in telling the students just what the test would cover or just what would distinguish a good paper from a bad one. They described an increased tendency to see a poor grade as reason to complain rather than as reason to study more, or more effectively. Much of the discussions had to do with the amount of handholding faculty should do versus the degree to which the response should be something like, “Buck up, this is college.” Does the first response simply play into and perpetuate students’ neediness and unwillingness to take responsibility? Does the second response create the possibility of serious emotional breakdown, or, who knows, maybe even suicide?

More here – Psychology Today


Reviewing a handful of studies on the subject, Harvard Health contends that “gratitude helps people feel more positive emotions, relish good experiences, improve their health, deal with adversity, and build strong relationships.”

So it’s no wonder expressing gratitude is the first social habit most of us acquire. We’re taught to say thank you around the same time that we’re busy sorting out whether or not Play-Doh is food. The fact that so many of us struggle with the practice long into adulthood means we aren’t just disappointing our parents. We’re also hurting our health and careers.


More here – FastCompany

Charts Of Interest 27/11/15

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Love and Madness in the Jungle

A brilliant American financier and his exotic wife build a lavish mansion in the jungles of Costa Rica, set up a wildlife preserve, and appear to slowly, steadily lose their minds. A spiral of handguns, angry locals, armed guards, uncut diamonds, abduction plots, and a bedroom blazing with 550 Tiffany lamps ends with a body and a compelling mystery.

More here – Outside

Reality Rears Its Ugly Head

I have lost count of the number of conversations I have had with aspiring traders over the past 30 odd years. These conversations tend to have a few common themes, they are undoubtedly aspirational, often exciting and sometimes lacking in reality. It is this lack of reality that is the saddest part for me because you have to bring a degree of realism into peoples lives. Often people are already being crushed by the realism of their lives, which is why they have turned to trading to change the trajectory of their lives. By pointing out the realities of trading in many ways you simply add to their burden and this is very distressing.

A recent conversation sticks in my mind for all the wrong reasons. This person was in their early 60’s and had a trading pool of $30,000 and from this pool they wanted to draw between $30,000 and $50,000 per year and also buy a small place near an airport so they could travel regularly. It is when you hear this that you are required to take a deep breath before preferring an opinion because your opinion will always be the voice of reality. As I have learned over the years – reality is the last thing that people want.

There are many tales both tall and true of people doing extraordinarily well from trading. Most are familiar with the story of Richard Dennis, who along with Bill Eckhardt founded the Turtles trading group. Dennis is reputed to have turned a $1,600 loan from his family into a $200 million. And there is no rule I have come across in markets that says that this is not possible for everyone. However, it is important to recognize the difference between what are exceptional cases and what is the norm for the majority of traders. Trading is like any other human endeavour, there are a spectrum of abilities. Some do really well, some do really poorly and the majority are in the middle. There is no upper limit to how much you can make trading. You will not suddenly get a call from an exchange asking you to pleas stop and let someone else have a go. However, there is a lower limit and that is how much capital you have available. It is this asymmetric distribution that makes trading attractive because we only ever see the long tail of profitability stretching out to what we perceive will be life changing wealth. Much like a lottery. We don’t see the left hand side of the curve, which is the destruction of the capital or the big fat bit in the middle where we are just mediocre.

The point of this missive is not to be negative as to everyone’s prospects but to inject a note of realism into expectations. I have noted over the years that it is the lack of realism that brings traders undone. The traditional approach I have seen with traders is that they read a book on the weekend start trading on Monday, expect to buy a Porsche on Wednesday and move to Provence on Friday. When this doesn’t happen they throw their toys out of the pram and give up. Much like they have done with everything else, which is why they are in the position, they are. Trading is a grind, it is not as portrayed either in the news or in other forms of media. You do the same thing in the same way everyday – that is simply the way it is and most cannot cope with this. The reality of time and effort defeats their dream simply because it takes time and effort.




The AFR Prints Something Useful….Jaw Hits Floor

For a man who has built a $US30 billion  hedge fund empire on the prowess of artificial intelligence, David Harding is  as human as you can get.

The 55-year-old founder of London-based Winton Capital Management’s personal fortune of $US1.5 billion is irrefutable proof that systematic trading can work, and works spectacularly well. But that does not make him immune from cynics and doubters that dismiss the “black box” funds he has built.

“People are mathaphobic,” he tells The Australian Financial Review.   

“There’s an unnatural hostility with people insisting that are funds are “black boxes”. If you don’t understand our fund, it’s because you haven’t made the effort to understand it.”

More here – Australian Financial Review

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