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  • A Roger Moore Story To Make Us Feel Better

    As an seven year old in about 1983, in the days before First Class Lounges at airports, I was with my grandad in Nice Airport and saw Roger Moore sitting at the departure gate, reading a paper. I told my granddad I’d just seen James Bond and asked if we could go over so I… Read more…

    A Roger Moore Story To Make Us Feel Better
  • When Enough Is Not Enough…
  • Its Not My Fault…But Then Its Never My Fault

    Whilst sitting at my local this afternoon enjoy a cuppa and a Kit Kat I spied someone reading a piece about a company called SurfStich which to be honest I had never head of as it doesn’t sit within my universe of tradeable stocks. To save you the trouble of reading the article I can… Read more…

    Its Not My Fault…But Then Its Never My Fault
  • This Really Shits Me

    This little rant has nothing to do with trading so if you are not interested tune out now. I came across the article below whilst looking for something else and I thought it would be a good primer piece for people who wanted to know a little bit more about statistics since it uses neither… Read more…

    This Really Shits Me

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I dont think so

Every so I often I am party to an email from someone who should know better. This particular email was around the topic of returns that could be expected from a novice trader. This email asserted that they were looking at the order of 1,000% pa, which in anyone’s language is a tall order. I can understand how people get these figures in their heads, the internet is awash with people claiming that you can give up your day job and intraday trade FX with $5,000 and live like royalty with no risk. Intriguingly I have once again started receiving spam emails from people claiming that options writing is a no risk cash flow generating strategy.

As such it is easy to see how peoples psyche becomes infected with this sort of nonsense and how with little real world experience they are sucked in.

However I was curious as to what the numbers would look like if you were making 1000% pa so I fired up Excel and let it rip with a starting balance of 1,000.

Capture

I dont even know how to say that last number. Suffice to say that somewhere around the first months of year 7 you are the richest person in the world and by the end of year 10 I think you have all the money.

As markets shed billions, traders welcome return of volatility

So says this piece in the Fairfax press this morning. The headline contains two interesting assumptions. That the market has become more volatile and that this volatility leads to the potential for profit. I will state at the outset that the linkage between profit and volatility that is often asserted by both some members of the finance community and the financial press at large is wrong – no such nexus exists. It is based upon a profound misunderstanding between trend and volatility. Volatility is simply the speed and magnitude of price movements, there is no directional component  implied in any statement about volatility. Trend is the capacity of price to demonstrate an underlying direction on price distribution.

The first statement about the return of volatility is an easy one to look at. In this instance the volatility measure being referred to is the somewhat flawed marker the VIX. The chart below shows a spike in the VIX when the ginger gibbon Donald Trumps month went from bad to worse.

VIX

However, on this chart I have plotted the long term average daily value for the VIX, at present this long term average stands at 20.1. The market is still substantially below this figure and as can be seen from the chart the VIX is prone to short lived spikes. These spikes are inevitable because at its core the VIX is a measure of perception and perception is a uniquely flawed mechanism for generating any form of metric. You can think of the VIX as a sort of how do you feel today index. As such it is prone to all sorts of maladies just like an individual is.

The question of whether an increase in volatility is a good thing is an interesting question and it is the one which often demonstrates peoples misunderstanding of volatility. The chart below focuses on the period 2003 to 2008 so it encompasses the US markets rise post the Dot com boom and the resultant carnage of the GFC.

vix comparison

The central theme is that high volatility leads to an increase in opportunity and therefore an increase in traders profitability. On the chart above I have marked the average volatility for the period 2003 to 2008, which for this period sat at 16.1. As can be seen for the majority of the period the VIX sat at below its long term volatility. During this period the market more than doubled. Low volatility is not an anathema to the potential for profit, the inability of the market to establish a trend is of more of a concern for traders.

This Article Won’t Change Your Mind

….The theory of cognitive dissonance—the extreme discomfort of simultaneously holding two thoughts that are in conflict—was developed by the social psychologist Leon Festinger in the 1950s. In a famous study, Festinger and his colleagues embedded themselves with a doomsday prophet named Dorothy Martin and her cult of followers who believed that spacemen called the Guardians were coming to collect them in flying saucers, to save them from a coming flood. Needless to say, no spacemen (and no flood) ever came, but Martin just kept revising her predictions. Sure, the spacemen didn’t show up today, but they were sure to come tomorrow, and so on. The researchers watched with fascination as the believers kept on believing, despite all the evidence that they were wrong.

“A man with a conviction is a hard man to change,” Festinger, Henry Riecken, and Stanley Schacter wrote in When Prophecy Fails, their 1957 book about this study. “Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point … Suppose that he is presented with evidence, unequivocal and undeniable evidence, that his belief is wrong: what will happen? The individual will frequently emerge, not only unshaken, but even more convinced of the truth of his beliefs than ever before.”

More here – The Atlantic

Hedge Fund Managers Don’t Always Beat the Market, but They Still Make Billions

Good performance, mediocre results or even downright ugly returns. When it comes to hedge funds, it scarcely matters. Even as some investors begin to sour on these high-priced stock pickers, the top fund managers still haul in enormous paychecks.

The 25 best-paid hedge fund managers earned a collective $11 billion in 2016, according to an annual ranking published on Tuesday by Institutional Investor’s Alpha magazine.

Even managers who had a tough year were able to cash in. Nearly half of the top-25 earners made single-digit returns for their investors, a lackluster sum in a year when the Standard & Poor’s 500-stock index was up 12 percent, accounting for reinvested dividends.

The top earner of 2016 was James Simons, the former code breaker for the National Security Agency and the founder of Renaissance Technologies, who made $1.6 billion. Ray Dalio, the founder of Bridgewater Associates who is best known for his philosophy of “radical transparency,” came in a close second with $1.4 billion. Further down the list was Robert Mercer, the co-chief executive of Renaissance and one of the biggest backers of Donald J. Trump’s presidential campaign, who earned $125 million.

More here – The New York Times

Note to self I must correlate the total compensation taken by hedge fund managers versus the industries actual return. My guess is that it will show a bunch of greedy bastards making a fortune whilst those stupid enough to invest with them make nothing.

Life is getting ever more volatile – or is it?

We live in an age of unrelenting change. That, at least, is what we are told by a consulting industry that thrives on a gospel of disruption, and journalists who overgeneralise from the earthquake in their own profession.

Anecdotal evidence of volatility is easy to find: the financial crisis; the cultural dominance of inventions such as Facebook (barely a teenager) and the iPhone (younger still); the rise of fringe political parties and a maverick president.

But the statistical evidence for disruption is less compelling. The most straightforward evidence of that is low productivity growth in many advanced economies. If the pace of change is really so frenetic, how come we don’t see it in the productivity statistics?

More here – Tim Harford

Amazon

I sniped the image below from a piece that charted Amazons remarkable rise. The rest of the chart set can be found here.

AMZN

Source – recode

The reason I was drawn to this chart and not the others in the series is because if touches on a theme that I rabbit on about constantly – the need to adapt and to avoid irrelevancy. What interests me about this is that Walmart has effectively gone nowhere since the turn of the century. Yet despite the obvious power of this metric they have allowed themselves to be effectively marginalised, as no doubt have the majority of other US big retailers. If you understand anything about the demographics of the US you will now that there will always be a portion of society that will shop at institutions such as Walmart but that population will shrink and the dell of the great American Mall is already occurring at a remarkable place as they are displaced by the juggernaut of online shopping.

Such a shift does raise the question as to what could be done by traditional retailers to avert the slide and my guess is that there is nothing that can be done. However, the bigger question and the one that is relevant to everyone is why did they not see the change as it was occurring? What blinds us to the obvious in our own lives? To this I dont really have an answer I have a few guesses and they revolve around the paradox  individuals being so narcissistic that they cannot perceive anything other than themselves ( a function of people who take endless photos of themselves). Or people being so uninvolved in their own lives that time and events merely wash past them.

 But these are only guesses based upon my own observations. These observations are naturally tainted by I own blind spots.

To age better, eat better

You think……

A habitually healthy eater, Frank Hu stocks his refrigerator with fresh fruits and vegetables, fish, and chicken. His pantry holds brown rice, whole grains, and legumes, and his snack cabinet has nuts and seeds. He eats red meat only occasionally, rarely buys white bread, soda, bacon, or other processed meats. He’ll purchase chips and beer, but only now and then, mostly when entertaining friends.

When it comes to eating smartly in ways that can help us keep fit and live longer, Hu knows best.

“There is no single, fit-for-all diet for everyone,” said Frank Hu of the Harvard T.H. Chan School of Public Health. Kris Snibbe/Harvard Staff Photographer
Hu took over the Department of Nutrition at the Harvard T.H. Chan School of Public Health in January. His eating habits are greatly informed by his research on what constitutes a healthy diet. While he knows they’re not for everyone, he says people can nonetheless move toward eating patterns that both appeal to them and help them stay well.

“There is no single, fit-for-all diet for everyone,” said Hu, a professor of nutrition and epidemiology and a professor of medicine at Harvard Medical School. “People should adopt healthy dietary patterns according to their food and cultural preferences and health conditions. I don’t have a rigid regimen, but I always emphasize healthy components in all my meals.”

And so, according to considerable research, can all those who want to reduce the risk of obesity, diabetes, cardiovascular diseases, and other chronic illnesses, and increase both longevity and quality of life in old age.

More here – Harvard Gazette

It is remarkable how much of the blindingly obvious has become lost to a public that  on the basis of the available evidence seem to be getting dumber and dumber. It is also extraordinary how many of the things I used to take for granted at university as being common sense now get grants to be studied

 

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