Aug

20

 Tom Hanks created a free app that is number one in the app store right now that makes your ipad etc sound like a typewriter because "everything you type on a typewriter sounds grand, the words forming in mini-explosions of SHOOK SHOOK SHOOK. A thank-you note resonates with the same heft as a literary masterpiece," he said.

It may be time to get that Big S&P pit radio up and running…or something that can turn volume i.e flow into rhythm.

Aug

15

 Some lessons here for traders in this article about cricket.

"Batting When You're Out of Form":

Being out of form with the bat is an experience that all cricketers go through whether they are test players or club amateurs. With each low score that comes, the batsman disappears into a world of self-analysis and negativity which creates a vicious circle of lack of confidence leading to even more low scores. It's important to realise that just as it's easy to have a bad run of form, it's just as simple to get back into something like reasonable nick. Here are some tips to help you do it.

1. Most bad trots come from mental rather than technical issues. You have the same eyes, same legs, same body all round so how you're thinking must be playing a part. Remove negative thoughts and steel yourself to get runs the next time you play. You've scored runs before, you can score them again.

2. Time in the Middle – A run of low scores usually indicates you've spent a short time batting out on the pitch. For your next innings, make a conscious effort to relax and bat some time to help re-learn some of the good batting habits you used to do. If it means you're a bit slow so be it. Andrew Strauss's 177 against New Zealand in the winter is a prime example of a player batting conservatively but for a long time to get back in form.

3. Not Playing Well? Accept that fact and bat accordingly. If you've had a run of low scores you won't feel that confident so it's essential to play in a simple, lower risk manner. Watch the ball as closely as you can and look to play the ball in a narrow 'V' between mid-off and mid-on with a vertical bat. Leave the higher risk horizontal bat shots like the pull and cut until you're 'in' or feeling back in better nick.

4. Run some singles – Bad form leads to lack of scoring and tension at the crease. Don't just look for boundaries to get you out of the slump. Quick singles are an excellent way of creating momentum and are absolutely priceless at the start of your innings so actively look for them and let your partner know you're ready to run.

5. Practice – The mental side of a bad run can be challenging so take positive action to get your game back on track. A good net session will do you a lot of good and some throwdowns during the week will help you feel that the bat is sitting better in your hands. You may have developed a technical fault which could be magnified by a lack of form so ask a team mate or coach to have a look at you when you're batting. Even if you're in terrible form, you will start to score runs again one day so the question is how can you assist that happening sooner rather than later. You may require a little break from the game to clear your head of distractions but if that's not the case, keeping your game simple, playing straight, batting for as long as you can whilst being positive and running singles is definitely your best option.

Aug

10

 A problem many market participants encounter is that they hold rigid views and systems which, just like the strongest steel and concrete, are destroyed under the right conditions.

It is nature that produces the strongest products of all, and we can learn from nature how to handle our trading. Take bamboo, for example: "the plants endure cold winters and extremely hot summers and are sometimes the only trees left standing in the aftermath of a typhoon. They may not reach the heights of the other trees, but they are strong and stand tall in extreme weather."

This article "10 Simple Life Lessons from Bamboo" provides many lessons for us all.

anonymous writes: 

Here are a few amazing things I have learned about bamboo over the years:

1. The young can grow very fast - 3 feet in a day.

2. Thickness of the young and the mature is about the same.

3. Most grow on barren land.

4. A whole forest of bamboos can come from a single root.

5. They blossom once about 60 years, after which they all die and allow new seeds to grow.

6. The seed has potent stimulant for animal reproduction.

7. Bamboo shoots, bamboo fungus, and leayv (or bamboo worm) are delicious to eat.

Jul

28

 The canopy of the large coastal redwoods contains a forest of trees growing from the top branches and trunk. Sometimes an oak tree for example grows at 175 high from the trunk. Half of all living species are contained in this canopy. It is good to remember this relative to the counterpart to bearometer at this level.

The coastal redwood is the longest lived, biggest, and heaviest living thing in world dwarfing the biggest whales by 50%. 

Craig Mee writes: 

There are some great photos and a good story in this 2009 National Geographic article: "The Super Trees"

"California revolutionized the world with the silicon chip," Fay says, his voice deceptively soft. "They could do the same with forest management." "Perhaps the most amazing thing about redwoods is their ability to produce sprouts whenever the cambium—the living tissue just beneath the bark—is exposed to light. If the top breaks off or a limb gets sheared or the tree gets cut by a logger, a new branch will sprout from the wound and grow like crazy. Throughout the forest you can find tremendous stumps with a cluster of second-generation trees, often called fairy rings, around their bases. These trees are all clones of the parent, and their DNA could be thousands of years old. Redwood cones, oddly enough, are tiny—the size of an olive—and may produce seeds only sporadically. As a result, stump sprouting has been key to the survival of the redwoods throughout the logging era."

This ability of the redwood, may highlight the importance of accumulation to build anything of a significant structure.
 

Jul

22

Have we hit the low in market bashing…i.e libor fixing, forex fixing, hft, dark pools? Is now the time to go bid on volume and volatility? Or is there plenty more in store….

"Barclays' 'dark pool' volumes drop in wake of lawsuit, data shows":

Volume in Barclays Plc's private U.S. trading venue, or "dark pool," fell 79 percent in the week and a half after the New York attorney general accused the British bank of giving an unfair edge to high-speed traders, according to data released on Monday.

Jun

23

 Watching Messi in the world cup game for Argentina I had the thought that the longer the game goes on, the more the defense forgets about the opposition's marquee players and what they are capable of, and the more they begin treating them like any other player, hanging off slightly in defense.

At that point they show their brilliance.

Just like the markets.

Jun

19

 I've always felt the story of The Boy Who Cried Wolf has many lessons for traders. The story from wikipedia is below:

The tale concerns a shepherd boy who repeatedly tricks nearby villagers into thinking a wolf is attacking his flock. When one actually does appear and the boy again calls for help, the villagers do not come thinking that it is another false alarm and the sheep are eaten by the wolf. The moral stated at the end of the Greek version is, "this shows how liars are rewarded: even if they tell the truth, no one believes them". It echoes a statement attributed to Aristotle by Diogenes Laërtius in his The Lives and Opinions of Eminent Philosophers, where the sage was asked what those who tell lies gain by it and he answered "that when they speak truth they are not believed".William Caxton similarly closes his version with the remark that "men bileve not lyghtly hym whiche is knowen for a lyer".

Jun

8

You cant be 2 -1 sets down in a major 3-4 in the 4th and serve 4 second serves…and expect to win…

Exhausted? Nerves? What's the trading equivalent …or like the serve in tennis …what is the trading equivalent when you can't force the issue?

Jun

1

Possibly the only way to hold any sort of intensity in a tennis match where the home crowd is against you (I'm watching the French) is to change tack and, as McEnroe did so frequently, control the situation as best as you can. You could try to get the crowd on your side by making them laugh, for example, but this might distract you. It may be like in trading against the cycle or trend and pinpointing your exact entry points, where although you know you're against the tide, you can still win without changing your style. So maybe you can have your cake and eat it too. You just need to know that's exactly what's going on.

May

28

 To what extent can Pascal's principle where a change in pressure is transmitted undiminished to all parts of an enclosed liquid or gas system, whereby a small change in force on a narrow area can move a much larger force on a larger area as used in car lifts or construction machinery, be applied to markets in certain situations? Is this a useful question?

Stefan Jovanovich writes: 

The Chair has asked a question that I cannot answer so I will add to my stack of irrelevant comments. What is called the Industrial Revolution was neither. Metal working and large scale enterprise were not new things. The Arsenal at Venice and the Royal Navy's yards with Brunel Sr.'s block carving automatic lathe did not need the "invention" of the steam engine. It was the discovery and application of the paradoxes of fluid dynamics that created our modern world — first steam, then gases and liquids generally.

Gary Phillips writes: 

Mauboussin likes to talk about the market as a complex adaptive system and critical points where large scale reactions are the result of small scale perturbations, the implication being that causality can be difficult to identify because it is often very subtle.

Traders tend to focus on multiple and ubiquitous agents that may not drive price, but do support their directional bias, while ignoring potential outcomes with low probability that may be driven by hidden or obscure agents. Same with systems with too many degrees of freedom and over fitting.

Gary Rogan writes: 

I often think of the market as a Pascal system or a school of fish. How do all the stocks know to move the similar direction?

Ralph Vince writes:

In the context of fluid dynamics, Gary's question leads to the (near inescapable) conclusion that the movement of stocks prices, in this context (with an isomorphism to 3D space of the varioius stocks) is characteristic of the flow WITHIN the de/compressing cylinder itself, under varying states of compression at varying times.

A study of hydraulic flows would show that fluid flow within the cylinder itself is not uniform, and is also a function of various degrees of pressure.

From this we could create such a model.

Gary Rogan responds: 

It is kind of like that, but it's almost like there are local agitators within the cylinder. This morning provides a perfect example that I can see in my own stocks. Some joint venture news in MDLZ, one of the Kraft spinoffs has provided positive agitation to the food stocks, and more so to the specifically beverage stocks, and less so to the consumer non-durable stocks. This agitation is somewhat sticky in that when the market first rose for whatever reasons and then fell likely on Yellen's remarks, these stocks seemingly have experience a smaller sensitivity to the market had the important news not occurred. It's like a decompressing cylinder with small local explosions/collapses.

Ralph Vince adds: 

 Matter in the expanding (i.e. decompressing) universe may be a better model?

But it still boils down to a feed back loop where the output of one becomes the input for the next ( in one case amplifying and in the other dampening).

Gary Rogan writes: 

That's an excellent analogy and something I've been reading a lot about! It's not perfect but likely productive.

Immediately after the Big Bang the small world was pretty uniform. But then quantum uncertainty fluctuations have added a small pattern to the Universe that was the progenitor of what we all see today. In addition sound-like wave resonated within the Universe leading to the spectrum we still see in the microwave radiation today. Gravity has dramatically amplified the initial quantum fluctuation leading to the truly observable local pattern of galaxies, stars, and planets. And of course all the following star formations, collapses, and explosions created all the heavy elements as well reshaped the local structure of galaxies. Plus there is all the dark matter and dark energy (dark pools?) that exert gravitational and expansionary forces that can only be guessed at by their effect.

Craig Mee writes:

From the back benches, I think the problem may lie in measuring the change in volatility, since under no news conditions, the environment may be ideal, for example, after news releases in Europe mid morning before the states come in. After that though, it may be difficult to separate cause from effect. 

Jim Sogi writes: 

Might a small amount of money pouring into something like gold or oil or wheat move the entire market? The canary principle might be at work rather than Pascal's causal function, and there may be a lag, complicating the relationship.

anonymous writes: 

 The use of finite-volume methods in sell-side modelling suggests it is a useful question. Market cap is a "squishy" concept of volume, as it can change when prices rise and fall. Book value is less squishy but still far from rigid.

Imagine a directed graph of trade flows among several companies, forming a trade network. Suppose there is a bottleneck somewhere. Destroying this link might be more disruptive than destroying other links.

My father used to talk about one of his coworkers who whirled about his organisation with fingers in every pot. This individual did much more than his job description suggested. When he left the organisation many projects across departments floundered.

The Allies' North African campaign of WW2 was meant to attack a "pressure point": Rommel's petrol supplies. Paraphrasing ER: "The bravest man can do nothing without guns, the guns can do nothing without ammunition, and neither guns nor ammunition are mobile without petrol."

I would also use the metaphor of joint-locks in jiu jitsu. Consider the manifold of configurations of your opponent's feet, knees, hips, shoulders, elbows, wrists, fingers. Applying pressure (vector) to the wrist and fingers in most of these configurations will not move the opponent's feet or hips. Joint locks find the configurations where a small force in precisely the right direction will cause the opponent's feet and hips to move a lot.

Saving the geekiest example for last: in George Lucas' fantasy world, certain Jedi Consulars are able to, with sufficient meditation and magic, see "shatter points" in a situation–precisely the kinds of vulnerabilities that will spread and multiply force to a wider area.

May

22

 I visited Nitmiluk National Park in the Northern Territory of Australia over the last few days, and in particular Katherine Gorge. One thing that stood out is the absolute calmness of the place. In that lay the strength. This will change of course in the wet season when roaring rivers floods and waterfalls prevail. Much like markets, slow low volatility trends exhibit strength, but with Larry’s seasonals and a shift in the prevailing wind, much may change.

May

21

It has been mentioned many times by many veterans not to trade when unwell. Although that's difficult, especially as a setup trader, I concur. If you lose, your immune system is no doubt compromised further by the bad news and your mood certainly does not improve.

May

16

This article made me think about what ways markets are presented to alter whats actually underneath.

"Colin McDowell dissects the anatomy of fashion":

In The Anatomy of Fashion McDowell says he wanted to explore the obvious, but often overlooked, foundation of fashion: the human body. Starting from the beginning of recorded history and carrying through until the present day, he catalogues the various ways the body has been fetishised, forbidden and used to excite people through the ages. As McDowell writes in the introduction: 'Clothes do not simply conceal the body: they alter it. Pads make shoulders wider; bras change the silhouette of the breasts, corsets and belts provide narrower waists; collars make necks longer and more slender; vertical stripes elongate the body; dark clothes appear to slim. These physical trompes l'oeil have an emotional counterpart: if we think we look good, we feel good.'

May

16

 Whether it is scientists who have worked on a issue for years, a man whose marriage has broken up after 25 years, or an investment manager who is used to pocketing big profits on fees and no matter the fund's performance will always find a way to underpay his staff, so much depends on personality types. Man is not the most flexible of creatures. Ego and bravado no doubt play apart. The setting of one's mind by repetition becomes a formidable force.

Could it be with Manchester United that the players group had mentally prepared for the exit of sir Alex Ferguson and after his tight reign had prepared for a "break"? No matter the coach that followed, the result would have been much the same. I wonder if traders make the same mistakes with profit and loss curves and goal setting, creating the gremlins that brings their trading down.

Jordan Neuman writes: 

In his baseball analysis, Bill James conjured the "Shotten Syndrome," named for mild-mannered Burt Shotten (well played by one of Barney Miller's colleagues in the movie 42). The theory was when a relaxed guy followed a taskmaster, in Shotten's case Leo Durocher, the team would respond positively.

In trading the analogy would be hewing too closely to a fixed idea of one's trading. Whether that is limiting the type of contracts one trades, long or short bias, long or short premium, it tends to eventually narrow the processes of the mind. Of course straying from one's area of competence is a separate problem, but who said this is easy? I have been running my own fund for 16 years, and while I wish I could have more than a few "pitches" back, as the low-level Air Force guy said in War Games, "#@$%, we're still here!"

May

7

The kiwis jaw-boned today heavily on the bird. After major talk and rate increases saw selling through Asia into Europe, I will be interested to see if the news will be acted on and if it will further reposition into the morning in the U.S. and beyond.

Earlier in the day it appears the European open drove buy stops after heavy Asian selling for the first hour to two, which gave the bank dealers a nice bid to sell into… then, wack. Lovely juvely, I will have to look to see under such conditions if it is their usual form….quacks like duck, walks like a duck …. 

Apr

28

 I was people watching, sitting down at a local surf break cafe at dusk last night. From the rich kid expats with brand new surfboards hamming it up after a day in the surf to the tourist couples enjoying a seafood dinner, to the guys in the break getting the last waves of the day to the street hawkers sifting through their pockets for loose change for a bottle of water and doing the thirsty work of sizing up the crowd for the next sale– all participants were in the same working scene, but no one was thinking about what the other participants viewed. It made me think that there are so many variables to consider about how everyone got to be the way they were. As with life, as with markets.

Apr

22

 We need to analyze this. She is unconventional, chatty, attractive. Does she throw the competitors off?

"Victoria Coren Mitchell makes poker history with San Remo victory"

Now Victoria Coren Mitchell has made history by becoming the first two-time winner of one of poker's most prestigious tournaments.

"I think I'm quite quirky in poker because there still aren't many women playing big tournaments," she said.

"I have another job and I sit at the table drinking wine and chatting. Poker's a strange game because it's face-to-face combat and we're trying to knock each other out and take each other's money but at the same time we're all friends."

Ross Jarvis, editor of PokerPlayer magazine, said Coren Mitchell's win came at a time when professional poker veterans are fighting it out with a new generation of online whizzkids, many of whom have won millions before they turn 20.

"You have players who are the best in the world who are well-known in poker, then there are so many young players who you won't have heard of until they burst on the scene. Within the hardcore, there are people as famous as Victoria but when it comes to the mainstream she's in a league of her own," Jarvis said.

Jeff Watson opines:

In my opinion, a good poker player that happens to be a woman will beat up most men. Women scare me at the table and I generally play around them. If they're semi hot, flirty, and charming, they have an significant edge provided they have solid poker chops. Their edge exists because they are in control just because of what and who they are and by virtue of this, can manipulate the opposite sex. It's a spectacle to see a solid woman poker player slice, dice, and chop up her victim. And many men believe that these women are just lucky since there's still that core belief out there that women aren't as good as men in poker. 

Ed Stewart writes: 

 A man's competitive instincts start to shut down around a beautiful woman. Competition goes against the natural order that furthers the species in a beneficial direction. Chivalrous notions emerge, good business sense quickly erodes. One can't fight that instinct for long, in my opinion. It is a lost cause.

In the old days when the workday was more segregated men were protected from this weakness. Now it is open season on us and the other side knows it. If a brokerage salesperson with a very sensual and attractive voice asks to make a face-to-face presentation, just say no, as difficult as it is to do, summon the will to do it and you will be thankful.

It could be that this is why men practiced some forms of workplace sexism. It kept us from becoming fools on a consistent basis. When our main work conflicts are with men we are energized. It feels natural. Not so much the other way. A women might read this and be extremely disturbed and think, "think with the big head" but it is easier said then done. Modern mores are constructs, conditioning, overwhelmed by the most simple flirtation, and every good looking professional woman knows this.

If we try to avoid the attractive woman we might be in violation of laws, so self-preservation is now illegal too. 

Apr

17

 There are a number of texts on single handed sailing, which speak to the effects on being becalmed on a sailors nerves. It may surprise some to know that long periods of being becalmed are more dreaded than fierce storms by experienced offshore sailors.

Since many traders work for themselves, I wonder how many are able to handle a lack of action without unintentionally selling volatility.

Many a lake sailor has learned this lesson and got caught with too much sail up when the weather changed abruptly.

I'd observe the Chair's courts provide such an outlet.

Chris Tucker writes: 

 When I sailed from Honolulu to Berkley in the late eighties we suffered from exactly this problem. There is a semi-permanent high pressure system that usually sits between Hawaii and California  and in order to sail back to the mainland you have to go around it. This means sailing northward from Hawaii for some time and then turning east towards the mainland once you've gotten around the northern edge of the high. The temptation is always there to make the turn. You are, after all, not sailing in your intended direction and there is a tremendous amount of psychological pressure to make the turn. After a while we found ourselves behaving like a bunch of kids in the backseat: "Can we turn yet? Can we turn yet? Can we turn yet?" And of course, we turned too soon and were becalmed for 17 days of our 27 day voyage. I saw the Pacific Ocean flatter than any pond. You had to put your face right down against the water and look along its surface to see the 1/2 inch tall swell.

We also dealt with some fierce weather and parted several sheets and lines — all of which had to be replaced to prevent the sails from being ripped to shreds. The top of the pilot house was fourteen feet above the water line and we were taking green breakers right over it. I had to replace the outhaul on the main, riding the boom like a rodeo cowboy in the middle of this. Exciting to say the least. I have to admit that shinnying up the forestay to gasket the jib, with the stay rotating in huge arcs and trying to fling me bodily into the sea while the bottom dropped away from below us and then screaming down the face of the wave to bury the bow in the trough - this - this was exhilarating and I've rarely felt more alive. The doldrums on the other hand, they were their own kind of hell. But I did find some of the most solidifying inner peace I've ever known during that time. So completely different sides of a coin. Looking back it seems that a tremendous number of miracles chained together have kept me here still breathing on the face of this rock. It is a wonder, an absolute wonder that I'm still here.

We were in a 56' ferrocement (yes - a concrete boat) 86 ton ketch. She was a very slow beast of a tub but quite roomy and comfy with a stable helm. There is nothing like the sea (except perhaps a bare rock face several hundred feet up) for pure clarity. 

Craig Mee writes: 

Work out your plan and the surrounding environment early, then plan to reassess in x hours or if the wind conditions change. Shut out any thoughts by fixing the radio or doing onboard work. Just like with trading, shut the monitors down, set call levels and work on some project management. Don't give the gremlins and hoodoos freedom to run wild.

Calm markets are worst after you take a hit and have lost ground and the agitation is there to move p and l to previous highs. The fact that markets delivered opportunity previously is directly correlated to the loss of opportunity currently. So vigilance and attention to detail should be at their highest. I wouldn't argue at this point to downsize positions until you play back into form.

Apr

15

Taking a look at the BDI over the past year, is there now a head and shoulders? I ask out of pure ignorance—just trying to learn.

Gary Phillips writes: 

Back in the day, before the day…

I am loathe to admit it, but I first read Technical Analysis of Stock Trends by Edwards and Magee in 1971 when I was 18 y.o. (Btw: the acknowledged bible on technical analysis was written in 1948). There weren't any computers back then, so we had to keep the charts by hand. Along with reading and studying the book, Leo Melamed and Barry Lind mentored me in the application of TA to trading. I used to keep charts back then for Tom Dittmer, who ran Refco. In return, he taught me how to scalp in the pit when I first became a member of the CME in 1976. Bob O'Brien sr. taught me about the livestock markets, and when I migrated to the CBOT, I leased my membership from Bill Eckhardt, and was lucky enough to receive his tutelage. I stood next to the largest independent futures trader in the world (Tom Baldwin) for 10 out of my 25 years in the bond pit, and after + 40 years of trading, at the age of 61, I am still learning the craft from Vic and others on the list. Ghere are a couple of points to be gleaned here:

1. as Rocky H. once said, I am smart enough to know I'm dumb enough, that I don't know everything; which is the reason why I have always surrounded myself with individuals who are smarter and more experienced than myself. Unless you are playing poker, you never want to be the smartest person in the room– you won't learn anything, and you should never stop learning! and 2. the bible on technical analysis was written when Truman was president. I think they were still communicating by telegraph back then! Does anyone in their right mind really think that today's machine driven markets even remotely resemble the markets of that era? 

David Lillienfeld writes: 

Ok, but I don’t think the BDI is an object of HFT. So wouldn’t older approaches (i.e, from 1948) still be applicable? Or from a technical perspective, is it the tenor of the market (a butterfly in Africa flapping its wings sort of thing) which matters?

Gary Phillips writes: 

It's still an index and algo-driven professional trade, and I can't envision the palindrome putting on a massive short position predicated on a h&s top formation.

What is timeless in reference to traditional TA, is the tendency for traders to isolate the one data point (formation) that supports their directional bias while ignoring data points that contradict with their forward looking view of the market.

Charts in and of themselves are invaluable. They provide a point of reference for money management, capital flows, correlations, relative strength, etc, but, traditional TA (cliched patterns, trendlines, etc) seem anachronistic as a stand-alone predictive tool.

Craig Mee writes: 

Hi Gary,

I think its a mistake to put all TA in one basket. For example, trendlines are very different than patterns. If you can quantify the edge your setups possess, you may have something to work with. The problem that I see is with most technicians, they are running so many parameters and indicators that this is unachievable. I think market volatility and news is a function of whether markets behave similarly now to 60 years ago and am constantly amazed at often they do.

Gary Phillips writes: 

Perhaps in a very generalized manner, i.e., markets go up and they go down, they back and fill, and uncertainty is still a fundamental reality in trading, and, just as in the past, the best we can hope to achieve, is an incomplete, but probabilistic knowledge of that environment. However, the tools we use have changed and so has the perspective needed to understand the context of the contemporary market. It requires an approach built on an analytical framework that is relevant to current drivers of price. While traditional TA may provide a comfortable resolution and a summary shortcut to order amongst all the chaos, it doesn't yield any insight into market structure. What dramatically distinguishes today's trade from yesterday's is market structure and Fed policy. To a very large extent, price action is no longer controlled by humans, and to an even larger extent, price action has been contaminated by qe/zirp. This is the fork-in-the road where the past deviates from the future. This means resisting the sirens' call to assign causality to traditional ta patterns, trend-lines, fibs, and other hackneyed tools that were created for highly auto-correlated markets, driven by human decisions and real risk/reward considerations. It means using the right tools with proper perspective and incorporating relevant informational signals from a wide range of deterministic processes. The new-normal approach begins with recognizing the current dynamics of liquidity provision and developing an informational framework with signals that reflect the machine driven reality of HFT, along with an understanding of the impact of qe/zirp and risk-on/risk-off.

Craig Mee writes: 

Agreed there are some larger drivers at play, and something like a magnetic or invisible hand keeping the pull to one side. But the boom and bust nature of the markets of the last 19-20 years is far from at an end so any extension will still be reverted. There may be periods and instruments where opportunities at times are limited, (for example, I would say its probably easier playing the curve now in rates then trading outrights) however fear and greed under the right volatility conditions is, in my humble opinion, still a force to be reckoned with. Separating the house of TA from price action and behavioral sciences is probably a good start so as not to give a illusion of believing in hocus pocus and mad methods while not understanding the underlying. The major returns and opportunities will still run with fundamentals, whether forced or established, but being able to have a value entry via the opportunities that humans create through their ever present qualities such as running with the herd on news and perceived threats which don't eventuate can allow for outperformance. I believe that the question of whether to weigh the opportunities that human behavior presents has to be sized up under the right volatility to ascertain whether risk has been compromised. 

Apr

10

Victor has always said, "don't get in over your head" and it may be interesting to note you can do this in more ways than one. The following is not the most obvious way to get unstuck. I'd classify it as rotting from the inside.

Recently while putting on a trade with suitable parameters, I executed a sell order and initiated the correct size for risk, however as the market ran, seeing an opportunity, I hit it again for some size with a very close protective stop which I immediately moved to scratch. The market kept moving my way over the next several days. Lovely. However at this stage my mind was busy executing other trades and unwittingly focused on mark to market net profit across the board. So when the market jammed without reaching my profit target for said trade, this caused undue attention to this trade and bad trading habits to creep in, like trying to manage a position which should never of been as mark to market open profits tumbled.

I learned my lesson: keep away from trades that could take away from your model focus (or at least keep them and the attached numbers very separate). It's a bit like a hoodoo/ gremlin entering your book. It initially promotes great things but then seizes on the opportunity once you're off guard and tries to destroy you. The focus has to be in "holding the line" and allowing for no errors or anything that promotes them.

Apr

8

It's interesting that when trading some things, although not technically correct, just make sense and are hard to ignore. For example, although you know it's best to have your edge play out on a particular model/stance, if you're running a position and happen to check the market when the price is a tick or 2 away from your exit target, then it just makes sense to book. At this moment in history it may be a 50/2 trade against, but your impulses cannot be ignored, right or wrong.

Apr

7

 I found this approach quite fascinating.

An M.I.T. professor wants his students to begin using educated guesses to come up with solutions to math problems in the real world.

"Why Math is Like Street Fighting":

Street fighting and math hardly seem like they would fit together.

But for Massachusetts Institute of Technology professor Sanjoy Mahajan, street fighting is a perfect analogy to encourage his students to use educated guesswork to solve math problems in the real world.

"In street fighting, the beautiful form of a kick doesn't matter," Mahajan said in a phone interview with the Star. "What really helps you is if you connect and get results you need and survive. You can think of problem-solving as being in a duel with nature. You want to get to the end. The beauty and the elegance of it doesn't matter."

In his course, the "Art of Approximation in Science and Engineering," Mahajan, associate director for teaching initiatives at MIT's Teaching and Learning Laboratory, wants his students to use a variety of principles or ways of reasoning - everything from analogical to pictorial - to come up with solutions.

Mahajan believes essentially the students have to lower their standards - a hard thing for any educator to utter and even harder thing for perfection-wired students to embrace.

"They have been trained that science and engineering is all about rigor and exactness. And yes, it is at the end. But at first you need a rough idea of where you are. You need to lower your standards and get something on paper."

Mahajan believes that if students focus on rigorous exact formulas of mathematics, they'll never come up with solutions. "Life comes at you with roughly stated problems," he said. And "you need rough answers."

He often encourages students to draw a picture of why something is true and then they can usually apply the answer to a harder issue. "Our brain is more developed visually than symbolically," he explains.

He also advises his students to find a simpler version of a problem they're trying to solve and try to solve that first. Once that's done, the student can apply the answer to the larger problem.

Another technique he said students can use is "the divide and conquer" form of reasoning. "If you have a hard problem, divide it into bits," said Mahajan. "Like the British ran their Empire."

Mahajan says the key to street-fighting math is to be intuitive and adept at understanding how equations work in the real world.

"You can use these techniques to explain interesting things about the physical world," said Mahajan, who was born in England, grew up in New Jersey. He went on to study physics at Stanford, then mathematics at Oxford University. He did his PhD in theoretical physics at the California Institute of Technology and post-doc work at Cambridge University in England.

"I wish everyone would learn math this way."

In an attempt to share his theories with the world, he has written a textbook for his students and anyone else who might be interested. Street Fighting Mathematics: The Art of Educated Guessing and Opportunistic Problem-Solving is published by MIT Press but is also available online, licensed under the Creative Commons Non-Commercial Share Alike. That means anyone who is interested can download it for free and distribute copies of it as long as they don't sell it.

Orson Terrill writes: 

I totally agree with this guy. Progress shouldn't be a prisoner of perfection. When I traded my first algorithmic "system" in currencies, I did not have the privileges to automate my trades with my currency "broker" (often they take the other side on paper), nor the funds to get a real intermediary (I was in college while supporting my teenage brother). Keeping two separate computers running, I had my right hand over my ten-key to an excel workbook, and my left middle finger on the key to take the bid or ask. Often, I would only get the initial figures into my excel sheet, and then "quick and dirty" my way forward for a few minutes. I was still able to put a large number of trades lasting less than a minute, and many that were only a few seconds (it depended on market volatility). The approach was to scalp after a relatively large move began to pause, and depending on the time of day, it could be unreasonable to expect scalping opportunities to remain for long (though they could before an important announcement, or as traders battle each other over the significance of whatever line in the sand has formed, or both).

It is true that much learning is sacrificed at the cost of the perfect learning of formulas that are usually only a model, or an impression, of what happens in the real world anyways. If you're hoping that a price model can be generalized, a holy grail, then it is almost certain that the conjecture will need be formulated with liberties taken.

Craig Mee replies: 

Point taken. But though you can win a scrappy dog fight, and the numbers are all quite correct in the excel spread sheet, for longevity in this game, I'm all for finding form and beauty. If you can fight day in and day out and keep your head above water and do ten years and kill it, good job, as in, job done. But to fight every day, and not suffer long term brain damage, I think, is tough to ask. 

Apr

2

 1. When you got out for lunch, the market will take a big move in your favor that you were too slow on the trigger to capture. Your wicked friends will stay glued to the screen during that time, knowing the big move in what would have been in your favor is about to happen.

2. When you switch your position size down after series of big losses, you will hit 5 winners in a row, which will not compensate you for just one of the big losses you took.

3. The bonds will rally big on a economic number like GNP, but stocks will go down sharply and the explanation will be concerns about interest rate increases.

4. The big basketball game will feature a comeback the previous evening that is exactly like what happens in your market, and your team won't make it to black nor will you.

5. Whenever you have a big loss, and it turns around and goes to break even and you get out with a hootenany of relief, the market will go at least as far in your favor if you held as your were under water before.

6. Whenever there is serious morbidity in your family, you will lose many days in a row.

7. After a tremendous decline, the market will percolate around near unchanged for a day or two until you give up hoping for a rise, and then it will have a huge rise in your favor.

8. After a series of lucky trades in your favor, you will increase your size and the market will give you a tremendous beating. The same thing happens with basketball teams when they hit a lucky % of threes in the first half. When they try the same thing in the second half, they will make only 10% of them, and will go on to an ignominious defeat.

9. The worst trader on your team will be the one that defends you after a big loss and says that everyone should rally behind the boss, he's been trading the longest. Imagine the ignominy of having Smith the worst player in the league, and the cause of all the Knicks woes, defending Woodson and saying all the team should rally behind him because he works so hard.

10. Your wife will come in and look at the roller coaster chart of your swings on the day, and suggest "why don't you get out of half". You won't listen to her and you'll double up, and you'll be so ashamed you'll quietly sleep in the dogs kennel that evening.

11. The more time that passes from your early days as a speculator, the better you were (in your own eyes).

12. When you're long the grains in the summer, and you spend a weekend in the Hamptons, the sun will shine brightly all day, and a light rain will fall at the end of the day.

13. When you go out for dinner, the person next to you will be talking about his youngest daughter bought Netflix and Tesla and made millions on them.

14. After getting out of positions successfully on a swing during the day, you will try it the next day, and by the close if you had held your position you would be a rich man.

15. When you're long the market over the weekend, war will break out, or John Kerry will be reported to be visiting the Mideast or Russia to put out a fire.

Please add to the list.

David Lillienfeld writes: 

Vic, if it makes you feel any better about it, I often wind up having to sleep in the kennel, and that's without a trading loss. And we don't even have a kennel.

Gary Rogan writes: 

David's tale of woe reminded me of the old definition of Metaphysics: it's like being in a dark room and looking for a black cat that isn't there. Either that or the waterbed joke: you know it's going to be a bad day when your waterbed has sprung a leak and then you realize you don't even have a waterbed.

But for me what's guaranteed to happen is this: if I buy a little of some stock, I will have a nice gain, if I buy a lot, I will have a big loss.

Ed Stewart writes:

 The malevolent invisible hand guides ones trades when the in-laws visit. Suddenly your position size is 3X the norm, getting bigger, and at just the wrong time.

George Parkanyi writes: 

16. When you sell or short a stock - a takeover announcement will happen the next day (that happened to me twice - sold Robert Simpson; shorted General Instrument).

17. When you go from theory to practice, your well-researched and tested system will immediately bleed money, and will only start making money (without you) when you stop using it.

18. The positioning of your stop-loss order is irrelevant - you WILL be stopped out within a few cents of the low/high, and the market WILL go roaring the other way. (This is the only sure thing in trading.)

19. You will apply logic, reason and critical thinking to the market. You might as well have thrown a dart.

20. In exasperation you will eventually just throw a dart. Your position will go against you.

21. You will continue trading anyway, because your DNA has failed, permanently locked in the "I can do this" switch position.

Craig Mee writes: 

As soon as you mention a position to
anyone (some more so than others–for example, Vic's Hoodoos) the
heavens will open and you can kiss it goodbye.

Ed Stewart adds: 

Another guaranteed to happen item. Far more often than should occur by chance an invisible hand keeps you in the loss by a few ticks. At this point if you get out with a planned time based exit, most often prices move quickly in what would have been your favor. If you stay in, it does the opposite. And a related item, if you get out with a day-trade profit, it keeps going in your favor for days. If you swing trade it, the reversal was just a blip in the previous trend and you are soon dunked underwater again. My thought, and I could be wrong, is that much of this is real, not imagined, and is a more distant effect of the adverse selection problem with limit orders.

Mar

28

 I read this great book Poachers Were my Prey: Eighteen Years as an Undercover Wildlife Officer last year and kept thinking about how dailyspecs might like it.

The down low: this is the starter book of this type of law enforcement. He is the Donnie Brasco of wildlife rangers.

I think all specs will like the book. It's the hustle of the country roads instead of the city streets.

It will open your eyes to new cons and new applications to markets.

Now I know there are a few of these types of book out there, so maybe some have read others in the genre that they would recommend.

Enjoy!

Mar

12

What free market? Maybe I'm missing something here, but I can't really believe this at face value anyway. Tesla getting squeezed out seems… would "un American" be the right phrase?

"Tesla Stores May Be Closed After N.J. Blocks Direct Sales"

Mar

3

Something I wonder about is at what stage does a "meaningful" run higher need to be justified with a fundamental reason that's ongoing, equating to the acceleration and allowing you to hold stock at these levels or at least be overly geared to the long side?

Boris Simonder writes: 

Can you quantify the definition of meaningful. Surely there's a wide interpretation.

If the security is gapping up aggressively, or in an usual way, more than its group peers, there may indeed be fundamental reasons behind it to justify holding the security. On the other hand, less liquid securities could just move faster (higher beta) without any fundamental reason we see today or the time of the move. But then again this could also apply to any security. The trick is to use the right input/tool (to justify a position) at the right time, regardless of methodology.

Feb

17

This article on oxytocin on wikipedia made me think that it's possible different markets release their own cytokines and perform better and recover faster when interacting with their favorite partners.

Social behavior and wound healing: Oxytocin is also thought to modulate inflammation by decreasing certain cytokines. Thus, the increased release in oxytocin following positive social interactions has the potential to improve wound healing. A study by Marazziti and colleagues used heterosexual couples to address this possibility. They found increases in plasma oxytocin following a social interaction were correlated with faster wound healing. They hypothesized this was due to oxytocin reducing inflammation, thus allowing the wound to heal faster. This study provides preliminary evidence that positive social interactions may directly impact aspects of health.

Feb

4

 I'm rather nervous about the ability of the EUR to hold on after much gain against the likes of the aussie, cad and old mate yen. Maybe like golf we can work back from the putting green, and others can drive home a more macro view why this may indeed be the case.

Besides rates, the last x period has taken out any overdone goodwill built into the Aussie-China trade partnership during the commodity boom. Now it's back into a form of value, but whether against EUR or USD, that's open to debate.

Today EUR/AUD RBA announced no cuts with the sign off: "In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates."

So at least on the aussie side this is conductive to the pair continuing to flatten.

Jan

26

 Tennis talk is a common theme on this site, one the chair himself often engages in, and we often do so with an eye towards market parallels.

Yesterday, at the Australian open Nadal beat Federer (commonly thought of these days as the greatest player of all time, but who is now 32 years old, extremely old for a professional tennis player at that level) in straight sets 7-6, 6-3, 6-3 I believe.

At one time, this was a great rivalry, but it was quite evident yesterday that Federer may not quite be what he was a few years ago.

Craig's reference was to the notion that perhaps Federer should have hung it up rather than embarrassing himself. My reference was to Nadal, who, with a dozen or so major victories to his credit, out to be conscious of an exit date for himself, rather than the pathetic decline we see with so many athletes, who so often seem to be the last to see it in themselves.

Perhaps Mr. Manning (who, in my mind is the greatest quarterback I've ever seen) should certainly make net Sunday be his last pro game, win or lose.

That's another of my two cents now I am broke like the Ex Governor of Virginia.

Craig Mee writes: 

The fed deserved the very best after his career and being the absolute gentlemen he is, he took the risk of playing on and having his name tarnished by a defeat like he saw Friday. He was comprehensively outplayed and was at a loss for words really in the post match interview. It is unfortunate some will view this as oranges and oranges. I give credit to him for pushing his limits, but now the tougher question arises of whether to hang up his racquet now or play on for potential further pain. Ralph is quite correct. As for market parallels, it makes me think about when to give a strategy away after it being successful for years.

Jan

21

Like the 5 minute mile, I'm wondering if upsets in the first 4 rounds of a tennis tournament create a greater instance of upsets in the back end, like Thomas the Tank Engine's "I think I can". If so, could this effect market pricing in the same way?

Jan

20

Of all the big stock rallies or market moves, which ones were centered on an encircling macro development that was able to sustain them for years to come? For example, is the push into internet based activity freeing up global trade and other undercurrents that are less obvious (3D printing) something which has to be taken into account when comparing price earnings and others now or at anytime, i.e shouldn't every separate movement be put into context of a valuation including up upward drift + economic drivers specific to this new distribution. 

Jan

10

 David Attenborough did an interesting AMA (Ask Me Anything) on Reddit. Nature, it seems, is full of lies, murder and downright meanness.

What has been your most distressing/upsetting moment in your career?

Seeing chimpanzees kill monkeys, they do this to eat them. They chase them, set an ambush, catch them, and tear them apart…

A chimpanzee does in fact tell lies. If you can believe that. Also, when some Colobus monkeys find a very precious piece of food, it calls the alarm call that it would make if a snake were to arrive, and all the other monkeys run away and it gets the food.

Jan

7

Mini crashes might serve to stabilize things in the larger picture if they clean out accumulations of stop orders and discourage their use and the use of over-leveraging. I am not sure why nanex thinks every event like this is news - is there really evidence that they are more common, or is it just that they happen over a compressed time frame? Back when some of the electronic contacts were fairly new, one of the first strategies I used was to set scale limit orders below swing points since little stop runs were often not fully followed by the big contract and tended to reverse quickly.

Craig Mee writes: 

It reminds me of arm wrestling. If there is a stale mate on even ground, you can feign weakness quickly in order to hit the opponent with even greater force when he is not expecting it.

Jan

7

 In light of Manchester United's current predicament, Sir Alex's old words should be revisited for current managers and punters alike.

"Only through success can a manager become master of his own destiny," Ferguson wrote. "Success unlocks all the doors. Set against a background of two or three trophies, decisions can be made with a ring of conviction, players accept what you are saying without doubting, supporters sustain their belief through the inevitable setbacks and you become a figure of authority without the need to look over your shoulder. Success achieves all these things as well as giving a manager security at home, knowing his job is safe."

They have been overachieving the last few years only because of Sir Alex. He hand picked his successor to ensure his legacy remains intact by setting up his successor for failure. Moyes walked right into the shiv.

United will be getting everything they deserve and more in the coming years. The potential cascading financial effects of not qualifying for the Champions League will be massive. What goes up must come down. It looks like Government Motors invested at just the right time.

Shirt sponsorships and future stock performance is worthy of a study in its own right.

Jan

2

 It would be interesting if the all seeing eye could see the reasoning behind all the typical reactions to a number like ISM manufacturing or employment. Let's say it's like 57.4 up versus 57.6 like today's number. First a rise in S&P because it's down. That means the Fed is less likely to taper. Second, a rise because it's only down 0.4 and it's still way above 50. Third, a decline because it means that the economy isn't strong. Fourth, a rise as the flexions cover their short. They were told the number was going to be down but most of them didn't get the exact number and it's only down a little. Fifth, a decline as the economic forecasters alert their readers that the number was down. Sixth, a further decline because Germany is down a tremendous amount more than the US. Many other cross currents also. All ephemeral and designed to unleash the weak from their chips.

Gary Rogan writes: 

It seems like reacting to any news of that nature in any way is counterproductive unless you had the information in advance. And yet 'everybody does it'. Why do people feel compelled to act on information even if they don't know what it means (relative to the reaction that has already occurred by the time they can act)?

Craig Mee writes: 

There was an ex deputy treasure secretary on CNBC Asia yesterday, (he may have held the top job for 4 days and I missed his name). His insights were little better than the rhetoric from a standard middle range company CEO, however he did appear straight down the line. Possibly the government at the highest levels is not necessarily implicit in the flexionic behavior of others. Many may not quite understand what they have available to them or that lower ranks are happy to take cut deals for peanuts on partial info. Big business, on the other hand, is able to squeeze every ounce of juice from all and sundry to create the beast that marches forward to all others' misfortune.

Dec

16

 This article illustrates a classic case of buyer beware. If it sounds too good to be true, it probably is, and why there will always be enough for everyone to go round in the markets. Fortunately and unfortunately. Many can't resist a good gamble, illustrated so well here by a punters club on the nags with no checks or balances and up to 200 million disappearing.

"Investors count the cost as Bill Vlahos' racing bets club collapses":

"If anyone is promoting a 20-25% return on your punting, then it should send `red flags' immediately,'' V'Landys said."

"…Earlier this year, Mr Vlahos told his members he had a betting bank of more than $90 million. Fraud squad detectives are now trying to figure out how much money is gone"

Nov

25

 There is a serious game of cricket happening at the moment between England and Australia. A test match which goes for 5 days. In that 5 days fortunes are made and lost and reversed on a daily basis.

The comment section of most papers following the action gives one a good indication of herd mentality. If this is the same representation of those trading markets news and announcements, then it is little wonder most are caught off guard. A day ago it was all pro England comments and the Aussies were toast, and today it's…. "Doomed, we're all doomed, I tell you. Well played Australia. England haven't a hope in hell of saving this Test."

Nov

19

 Here is some HFT fun for the whole family: The Wall Street Code.

This is the basic wrap about how flexions (all related at the big end of town, seats on exchange boards, shareholders, etc) have a fast track ticket entry to the front of the order queue.

If retail investors only knew this was the very least of what is against them.

Buy and Hold on monthly reset is looking more and more appealing.

Nov

18

 This man is worthy of a movie, which would very much unfold as dailyspec readers would expect, as he made fatal errors on the way up, including, it seems, expecting that the bull market wouldn't pop, and indulging his record cash outflow with much initial hubris. It's not over yet. He can still pull himself back from the brink.

"Boganaire - The Rise and Fall of Nathan Tinkler."

What strikes you about the tale of Tinkler is that he made two fortunes in his lifetime but never made a profit. Loss makers all: from his companies and coal mines to the Newcastle Knights, the Newcastle Jets and the Patinack Farm horse stud.

The other thing is the sheer velocity of the man's spending - the mansions, the cars, the planes, the bloodstock - and his unrelenting battles with creditors. Manning has totted up some 50 actions against Tinkler, mostly for not paying his creditors.

Tinkler made his first fortune scraping together $1 million and buying the unsung Middlemount coal deposit in Queensland. That was in 2006. A year later he sold it to his mentor, Ken Talbot, for $265 million worth of shares in Talbot's rampaging Macarthur Coal.

The timing was exquisite. He cashed out of Macarthur for $442 million in May 2008, then embarked on what must be the biggest spending spree in this country's history. By the time he came to his second ''deal of a lifetime'', he was out of cash, Manning says.

After a reckless spending spree of its own, and crippled by the global financial crisis, the mining giant Rio Tinto was dumping assets. It was early 2009 when Rio put its Maules Creek coal deposit up for sale.

Again, Tinkler saw the potential. He paid $480 million - almost all of it borrowed from US hedge fund Farallon.

All he put down was a 5 per cent deposit, but he didn't even have that. Talbot had tipped in $15 million in a short-term loan.

Aston Resources and Farallon and their lawyers were poised to sign off on the deal in the Brisbane offices of Freehills when Tinkler sent the Aston boys a text message.

He was down at the nearest pub, the Pig 'n' Whistle, in his shorts and thongs. You better come down, he said. Tinkler confessed that he hadn't been able to refinance Talbot. Farallon was about to fund Tinkler into a half a billion dollar deal when they found out his 5 per cent deposit wasn't all his.

Nov

18

Parallel Problem Solving from Nature 2014:

Natural Computing is the study of computational systems that use ideas and get inspiration from natural systems, including biological, ecological, physical, chemical, and social systems. It is a fast‐growing interdisciplinary field in which a range of techniques and methods are studied for dealing with large, complex, and dynamic problems with various sources of potential uncertainties."

Nov

15

 Once again the sensibilities of the centrals and sovereigns and flexions galore who buy the bonds at the auction were not discommoded.

Gary Rogan writes: 

I have maintained for many months that they will not let the rates run away for as long as they can help it because they just can't afford it. Those who thought that the employment report would provide some cover for the would-be taperers and sold everything in sight wrongly believed that the supposedly taperers needed cover. Their only real job is to delay the death spiral of higher interest payments => higher borrowing to make those payments => higher rates => still higher payments for as long as possible. Well, OK and to keep the big banks permanently on the dole. How can they ever do anything deliberately that will signal higher rates? Only mistakenly as Ben did in May, a mistake he tried hard to correct but not enough to even think about tapering.

But the good news according to Ms. Yellen that the stock market isn't in any kind of bubble either, so it's safe to buy. To infinity and beyond! Abby Joseph Cohen a noted expert on value in the market still sees some so it's all good.

Craig Mee writes: 

So many fake outs, levels of deception, noise, and price runs come to mind, but just a few take away from that trade that you look back on and think to yourself, "how easy should that have been, all I had to do was hold".

Gary Rogan adds: 

A few days ago Goldman's Hatzius found two Fed economist studies that support lowering the unemployment threshold for tapering. Of course that's only to help unemployment as all of the Fed's goals are ultrapure. How often do we see Fed studies that permanent money printing on this scale isn't something that has a precedent and these projections are on the level of "climate science"? Once again, to the man who only has a hammer everything looks like a nail.

Nov

14

 Some time ago Mr. Jovanovich posted an anecdote about old man Mellon to the effect that his kids never let him pay for a bill at a restaurant because the old man felt that prices should be the same as they were when he was a young man and that they were too high today. This is a common thing one runs into in certain people of age. They are accustomed to the old p/e, the average of the last 10 years, on those rare occasions in the 1930s when Ben Graham wasn't chasing the skirts, when you could buy companies at below their liquid cash, assuming incorrectly as he did that any shares were available and they weren't losing so much that the previous balance sheets were meaningless.

Galton had a way of dealing with such things, and he was the most revered man of his age, commanding universal respect, and heading all the leading scientific and geographic societies. "Let the bygones be bygones". Don't fret about bad things that happened, or look to take back the things that you could have done that would have made you so much better off. The woman you didn't marry. The stock you didn't pick. The limit order that wasn't filled.

I recently ran into this in a business meeting where I was trying to sell a company. When negotiations started the earnings of the company were half what they were when the negotiations resumed. The buyer was stuck on the old price and old earnings. The buyer consequently missed an opportunity to make a tremendous profit, of about 10 times his investment of millions in several years.

One often makes this mistake in the market. You try to catch a falling star and you miss it. And then it goes in the direction you had hoped. But you never come in again because you are trying to catch it at the bygone price. Anatoly once mentioned that he was trained in checkers by the KGB to learn to be an amnesiac so he wouldn't regret moves that he should have made on the board, and would look to the future.

In chess, the good players always say forget about the prices that have been taken and concentrate on the pieces that are on the board. I believe this is a common mistake in life and markets, and would be interested in the scientific and empirical and life and market lessons that you all have learned from similar ruminations.

Richard Owen adds: 

 Ted Turner believes a large component of his success is attributable to the fact he readily accommodated and cared not much about what had past. The Buddhist concept of acceptance and Kabbalahist idea of cause and effect are similar.

Compare Germany and Silicon Valley. In Silicon Valley ones past mistakes accrue as experience. In Germany there have been many internet start ups but also inevitably failures. Speaking to German friends, a failure there is carried like a deadweight around ones neck.

Society is destablising somewhat as the record of evidence of one's past peccadiloes becomes more extensive. Nobody can get into office or past congressional approval unless they lived a prude life of Cromwellian perfection. And its not clear one is best led by a Cromwellian prude.

Ralph Vince comments: 

There's two ways we learn things, the easy way, and the hard way.

If we learn things the hard way the FIRST time we climb up off of the pavement — that is the definition of a windfall.

Learning things the easy way is to accept facts like an obedient database. The only payoff to learning things the easy way happens when our perspective on the matter at hand altered such that we see it in its proper light and thus actually understand it, rather than merely as data.

To convey ideas to other human beings, we must amend their perspective, their point of reference on the matter, to see it anew from an entry point that they will understand it. To spare them the inevitable beatings of otherwise learning it the hard way is such a gift.

Stefan Jovanovich comments: 

In our misbegotten adventures in L.A. we had minor and almost all indirect dealings with the mouth of the South. Mr. Turner was so acutely aware of his father's defeat and death that even in casual dealings outsiders learned how determined he was to avenge/outpace/overcome his family legacy. He also was notorious, even in Hollywood, for accumulating personal grudges.

A great deal of individual success in Silicon Valley has come from the fact that the U.S. income tax code allows the tax-free pyramiding of gains through (1) buying and selling of principal residences and (2) exchanges of corporate interests. When you add the glories of carried interest, the result is a society of the well-connected in which there are very, very few failures who haven't held on to at least a respectable amount of the OPM. From the little I know of the German tax code, none of these opportunities to do a heads I win/tails you lose coin toss has ever existed in that country.

 Cromwell was many things, some of them awful; but he was never a prude. He and Elizabeth Bourchier had 9 children; and he and his wife were both, by religion, Independents. That meant they were those rarest of people who believed that Jews and (from the point of view of their Anglican, Presbyterian and Puritan contemporaries, even worse) Catholics were entitled to political and religious liberty.

What Richard may have meant is that Cromwell, as a military commander, was as piously single-minded as Joan of Arc. Like hers, his army never lost a battle once they had received proper inspiration; and each soldier literally believed in him and "the cause" for which they had a clear catechism. This was not ever going to be good news for anyone (Catholic Irish; Scots Presbyterian) who opposed him just as the Hussites (as dissidents from the true Catholic faith) would not have much mercy from St. Joan.

P.S. I find the history of Cromwell's catechism fascinating. If one were to ever come up for auction, the 1643 edition might be priced at a figure that even lovers of Bacon (the recently mentioned artist, not the writer) would respect.

For the American sequel to the story, check out The American Tract Society.

Victor Niederhoffer adds: 

One notes the Chinese proverb on a similar theme: "don't carry your hatreds into the new year" or the English variant, "you can't run a mill with water that's past". All languages seem to have a proverb similar to "let the bygones be bygones". The Jewish custom of asking forgiveness at the new year for all the harms that you have inflicted on other in the past year, and sharing a torte and tea is from a similar vein. 

Jeff Watson adds: 

One of my proverbs is to take the hit, forget about it, and move on. But then again I don't mind small losses as they are just part of my business, and I take many small losses of a couple of cents when I smell that the trade is going to be wrong. Just like surfing, where there will always be another good wave, in trading, there will always be another good trade.

Alan Millhone writes in: 

Dear Chair,

A grudge is a difficult thing to dismiss.

My Mother used to say, " I can forgive — perhaps not forget "

Sincerely,

Alan

Gyve Bones writes: 

Oliver Cromwell was an unmitigated bastard and I find no evidence he believed that Catholics were entitled to religious liberty. To the contrary, his raping and pillaging and wholesale theft of Ireland, which was clinging tenaciously to the Catholic faith, and the Penal Laws enacted for the suppression of the faith and Gaelic language starting then and continuing for a couple of hundred years was an attempt, largely successful at cultural and racial genocide.

His puritanism certainly enforced a prudery on England. Within 50 years of Shakespeare's death, his plays could not be performed. And prudery is not the same thing as having a fruitful but chaste (no roaming to other bedsteads) relationship with one's wife.

— G.B.

Show me a Puritan, and I'll show you a son-of-a-bitch. -H.L. Mencken

The President of the Old Speculator's Club writes: 

 Though Dailyspec seems to be a great repository of Mencken fans, there were a few voices which, although agreeing with him on many items, diverged on others. One such notable was G.K Chesterton. The two quotes which follow immediately demonstrate some common ground.

"The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary." —H. L. Mencken

"We are perpetually being told that what is wanted is a strong man who will do things. What is really wanted is a strong man who will undo things; and that will be the real test of strength." —G.K. Chesterton

On the issues of science and religion, however, Chesterton suggested that Mencken was equally skeptical:

I have already noted that, if there is such a thing as religious mania, there is also such a thing as irreligious mania. Just recently, perhaps, it has been the commoner of the two. But a very interesting study of the matter comes from a country in which we may say, without injustice, that both are fairly common. I had occasion to remark recently, in this place, that an American paper had accused me of being an anti-American writer; and I commented on the curious irony that the American paper was itself an anti-American paper. But, though I may be permitted thus to parry a purely personal charge, and a highly preposterous one, I should not like anyone to suppose that I do not both enjoy and value the magazine in question.

I am quite well aware that Mr. Mencken, the editor of the American Mercury, is really doing his duty as an American citizen in being an anti-American critic. I myself have been regarded often enough as an Anti-English critic, when I regarded myself as a patriot. In short, there are immense internal evils for Mr. Mencken to attack, and he is perfectly right to attack them. All is well so long as the good citizen abuses his own city. The trouble begins when the foreigner abuses it—or, almost as often, when the foreigner admires it. But, anyhow, the chief efforts of the American Mercury have to be directed towards this howling wilderness of sectarian sensationalism.

The popular science, that rages in the American Press and local government, is simply a dance of lunacy more ghastly than a dance of death. And an exceedingly valuable and important protest against it can be found in the same number of the Mercury from which I have picked the examples of theological hysteria. The protest is all the better because it is not the sort of protest that I should write, or that any person of my beliefs would write. The critic is writing entirely in the interests of Science, and is perfectly indifferent to the interests of Religion. And he enters a virile and telling protest against that science, which is his only religion, being dragged through the mire as a degrading superstition.

From a great article: "Religion in American History: I
Hate Methodism; and G. K. Chesterton vs. H. L. Mencken: Battle of the
Monogrammed Dudes. Surprising or Otherwise Interesting Primary Sources,
Pt IV"

Richard Owen writes: 

This is fascinating stuff. The modern day argo in British English of referring to something as Cromwellian is along the lines Gibbons indicates, although at one step removed perhaps.

Cromwell instilled the Protestant Work Ethic in puritanical fashion. That still pervades much of British psyche today, and is captured in popular imagination, for example, in the writings of the Daily Mail and the books of Tom Bower, Britain's foremost hatchet biographer of businessmen (I say this with great respect; his books are well written and I suspect Mr. Bower would be glad to acknowledge his genre bias).

Thus the Protestant Ethic mentality is to be rich and industrious. But with the emphasis on the latter. As Martin Sosnoff said of his Dad, something like: *"he never thought he'd earn an easy dollar, and he never did".*

The one thing that really irritates the Cromwellian mentality is to find out, after slogging ones guts up to Vice President and exiting to early retirement with a Carriage Clock and blue chip pension, is to find out the reason for corporate downsizing was because a kid from the JFS, assorted Anglo Norman public school boys, or an Asian immigrant rustled up a grub stake into Forbes Four Hundredism. And possibly even had some good sex, bad drugs, and hella fun in the process.

Not to make light. These are complex neuroses and threaded reasonable sense given each parties bias.

Craig Mee writes: 

Victor, the point can also be made that although a potential lost opportunity arises and there are fewer pieces on the board, the situation is then more clear. Although you may not establish the solid position you initially hoped for, many more tighter risk reward opportunities now present themselves, sometimes allowing you a defiant win on the move all the same. However, this outcome may be related to your initial and ongoing foresight about what's unfolding.

Nov

4

 The advice of Art Bisguier comes to mind when considering the Australian's post on turning off the lights. "Schtalll," he always said. "Sit on your hands and write your move down before you move the piece." I always say if you waited a day or two or hour or two on every trade, or definitely to the end of the day on every trade, you'd do much better. We live in a web of deception.

Anatoly Veltman writes: 

With due respect to everyone quoted, I'm not sure. Just like in board games there is time limit, so in any market contract, there is window of opportunity to cease a favorable price. Have recent tests shown that reversals occur between sessions, as opposed to intra-session?

I agree that was the case in yesteryear, because participants who over-leveraged during the day had to liquidate on the close, amplifying the riot. But these days, the pre-set electronic limits prevent such intra-day indiscretion. So it's just as likely to hit major pinnacle or nadir any time in the session.

Craig Mee writes: 

 Wouldn't it make sense to take all the bright lights, and colored up and down arrows, and green and red charts off your screens and replace them with blacks and greys. The flickering of the table creates undue excitement in one's mind and drives one to "play" when they probably should sit. 

Pitt T. Maner III writes: 

Funny, I was just reading something along the same lines but related to gambling. Best not to confuse the exciting red cherries and the appearance of green as being indicative of possible success.

"How Slot Machines Trick Your Brains":

"A reel on a virtual slot machine may seem to be cycling between 22 positions, but the machine powering it could have 64. This means you're seeing those cherries moving by way more than the odds that they will stop. Schull cites a study by Kevin Harrigan, an expert in algorithms, which says that if this type of machine were to pay off according to what people are seeing, players would win 297 percent of the time."

Oct

29

 At what stage do you try and fade the elephant in the room. What is a leading indicator that the government will introduce a policy change that could change this ferocious bid, with a lot more fire power on its way, if no changes are made?

"Investors Become Like Bulls in a China Shop":

A Sydney property developer who is working with Chinese investors told me that if Chinese stopped buying in areas that are popular with Chinese home buyers, the value of these local markets would fall by about 25 per cent.

These local bubbles are having a ripple effect, pushing buyers into other areas of the Sydney market.The impact of immigration is also considerable and cumulative. More than 400,000 people born in China or Hong Kong have become permanent residents in Australia. The number of immigrants from China continues to exceed 30,000 a year. The number of Australians who speak Mandarin or Cantonese is more than 600,000. The number of people in Sydney who identify as having Chinese heritage is now more than 360,000, or 8 per cent of the population.

The Foreign Investment Review Board looks carefully at the culturally sensitive areas of farming and housing. If changes being made by Chinese governments to cool their property markets are causing market heating to spread to Sydney and Melbourne, it shows just how integrated Australia is becoming with China and the Chinese, which brings a new set of complications - the complications of intimacy.

Stefan Jovanovich writes:

Both of Thomas Mellon's sons, Andrew and Richard, remember their father the Judge being amazed and alarmed at how much the prices of Pittsburgh real estate continued to escalate as more and more of the Irish and other immigrants spent money to buy property. When they would, as young men, take their father to lunch, they would always be careful to pay the tab because, for their father, prices should always have been what they were when he first ascended to the bench "before the war".

Victor Niederhoffer writes: 

This is why the values of privately held companies always lag behind the prices of publicly held companies. The idea should be generalized perhaps into why big stock market moves in one market filter and percolate into other markets. That has been tested.

Oct

29

 You may never eat street food in China again after watching this video.

The last words on the video are: "In today's society, everybody tries to swindle everybody else. There's nothing we can do about it."

From the top down, vendors to markets participants, ain't that the truth.

Oct

23

Kiwi hit hard…batton passed to

Aussie hit hard…batton passed to

Cable hit hard

Oct

22

 It's bush fire season in Australia. Maybe there are some market lessons on the table as well.

"NSW Fires: If you live in the bush, build for the bush"

"Individuals who choose to live in the bush as a lifestyle or economic decision might learn from Europeans threatened by Viking raids. They responded by retreating to compact, walled, defensive townships surrounded by open killing zones. Similar principles apply against bushfires — concentrate dwellings behind a short defensive perimeter, build houses that survive fire, and avoid, at all costs, dispersed housing that is vulnerable and costly to defend"

My market lessons are as follows:

Concentrate dwellings behind a short defensive perimeter = tight stop

Build houses that survive fire = trading account with solid management and plan

And avoid, at all costs, dispersed housing that is vulnerable and costly to defend = wide stops, in a high volatility environment that has not been back tested and uncorrelated to your main trading strategy. 

Oct

22

 You may have heard of the term "soft hands" in reference to horse riding. I found these explanations of the terms on a forum:

"Having soft hands is all about what the horse feels
in his mouth. Being able to feel even the smallest amount of pressure
you are exerting and being able to adjust it every moment of every ride
to ensure the horse's comfort and
responsiveness. Not being so quick with your hands that you bump him in
the mouth and having the proper timing to release the moment that they
give to pressure is also a big part of having soft hands."

"Generally when referring to soft hands… its not about how tight you
hold the reins. But more how tight you hold the horses head with the
reins if that makes since. Being soft handed also means having quiet
hands so not bumping the horses mouth when working. Basically…. soft
handed people use very little pressure of the reins to direct the
horse."

We should strive for soft hands in trading as well, and in all sports. To snatch and grab and hold on too tight for any outcome can spell nerves, caution and anxiety. This should never be the case when trading.

Oct

14

 Susan just went to a conscious capitalism conference that she supports and heard this story from Nick about how a letter to customers admitting his failures and asking for help saved his business. I believe there are many lessons here, including the importance of keeping in touch and honoring your customers. Every business should treat their customers as good friends, I think. What do you think?

Craig Mee writes: 

I found this article about ten attributes of a good friend. Maybe these are good ideas for keeping in mind when building your relationship with the markets as well.

1. Keeps your secrets (unless you are about to harm yourself)
2. Defends you
3. Gives you good advice
4. Listens to you
5. Cares about your well-being
6. Does not change how they treat you based on other people's feelings about you
7. Tries to help you when you need it
8. Shares personal things about themselves with you
9. Tells you when you are wrong
10. Gets over disagreements without getting crazy revenge

It also makes me think about how sometimes Mr. Market talks to you as a friend and you don't listen. Most of us treat him as an enemy. What if he is, in fact, a friend, but our insecurities and weaknesses let us down in building a strong relationship with him.

Oct

9

One interesting thing about markets that helps them to take from the herd is how one day, one hour, one minute, they will be the strongest price you have EVER seen, and then the next, the polar opposite. Draw them in and spit them out all day every day is the name of the game for Mr. Market. Any one involved is fighting that and their own deficiencies from the get go.

Oct

7

The volatility in many markets over the last 10 years I believe has created a desire in us to crave more action and to crave and indulge in childlike activities, like climbing trees or playing football. Does this negatively condition us to over trade? As we get older and lose natural energy, could this actually make a positive difference in our trading?

Oct

4

Possibly the most major inhibitor of short term trading is not reacting enough to fundamental changes in the environment of changing cycles and inter-market relationships that you're not privy too until long after the flexions and insiders have pushed their boat into the pond. Discipline is the only way to combat this. The more the deception, the greater the chance of failure.

Gary Phillips writes: 

I try to think of myself as simply an observer, not a trader, but an opportunist, which means I do not initiate arbitrary trades that inevitably degrade my P&L. This entails allowing questionable trades to go uninitiated, while waiting for trades that are well defined and have a proven edge, and levering up when a real opportunity is presented.

Sep

30

Doug Bollinger on trying to get back to the Australian Wallabies Rugby Union Test team: ''You hear people saying you need to do this and that but what I have realised is you need to get out there, grab the ball and just get on with it.''

Sep

20

Could it be said that flexionic involvement is high at the initial or embryonic stage of particular markets, depending on the ruling ideology of the governing country only to flatten out as a market's liquidity and usefulness as a risk tool becomes greater, and then moving again to greater insider activity as the market becomes larger than life, and a driver rather than a passenger.

Also, what are the purest exchange markets to trade?

Sep

19

 You have to admit that it's amazing to see gold go up 4 1 /2 % or $ 63 in 3 1/2 hours on a delay of the tapering by a few months. Since gold has been around for thousands of years, and is a store of value, a useful commodity, and an inflation hedge, you would think it had more of a base of operations that it seems to have.

Craig Mee writes: 

Is this Fed move a culmination of all the bailouts since '97, a pinnacle of their "success"? Can their position be deeper or more all in. Is it a total disruption of market ebbs and flow or just another ebb and flow? Along with major bank or other insider plays (has this got larger in itself over the period?), where is it going for asset prices from here? Is gold up large with equities a vote of confidence for equity traders or just the opposite…

Sep

18

 When leasing villas it has been my experience of late that the new ones built for a song, with little attention to detail but with a swimming pool and the latest trendy look, go for greater money, even when the land is smaller which usually entails higher perimeter walls with minimal outlook and next to no seabreeze. However if you get a house with no pool, you can usually get very good value for your money, larger land, outlooks seabreezes, etc.

I would say the same may be true in different market sectors. The stars may be the attention getting companies with the largest bright lights, but greater value may be in the old school where you have to look past the latest bells and whistles and the hype.

Aug

30

 Riding my motorbike today, I had that feeling I get occasionally of the bike being propelled by itself going a little too quick and a little too easily and feeling a little bit too free, some might say almost traveling seperately from the bike.

I get the feeling in the swimming pool too occasionally, very occasionally, or running off but doing it a little too easily.

On a bike that's the moment you know you must pull your head in and regain control (though it's just the opposite for sports) because danger lurks, just like after having a good series of trades in the market.

Aug

23

 My wife informs me, and from what I have witnessed at the local markets, that when she is buying local produce depending on what skirt she wears, how she does her hair, and which expression she wears upon entering negotiations, the goods will be priced accordingly.

Of course, any sign of our children will push prices through the roof. At a local doctor recently, when I printed my name in pen on the card, prices of medication went up 10 fold and the doctor's fee quadrupled.

It's best for me to show signs of limited knowledge if I can to stop the outflow. Even better, have others outside of your family purchase an item for you. But even then bills and receipts are doctored with dealers and slippage ensures. There is no end to how you can get hauled over the coals. Bit like taking on the Fed for the last 20 years.

Aug

22

 The fact that the Dax was up 3 ratio points against the US markets shows that the largesse of the flexions on our numbers is not withheld from those who make recipes for the bernaise and bechamel sauces in Brussels .

Alan Millhone writes: 

Dear Chair,

Am afraid the bernaisacky sauce might upset my stomach.

Note Dow was below 15. That is upsetting enough to many without adding any sauces.

Sincerely,

Alan

Kim Zussman writes:

It was dyspepsia from absence of Bernanke sauce.

Peter St. Andre writes: 

I really need to write a little poem that starts with "Ben Bernanke makes me cranky"…

Gary Rogan contributes: 

There once was a man named Bernanke

Engaged in some bad hanky panky 

But he went AWOL

and skipped Jackson Hole 

And now the markets are cranky.

Craig Mee adds: 

Bernanke the captain of Fed
Resembles Titanic's, Smith Ed
Evades all bergs, engines full out
Bond infinity, no damnable doubt
"Untapered, untwisted, now screwed", he said.

Aug

19

 Selfies: in line with a 200 year old trend of selfishness in our language:

"The 'selfie' is just the tip of online narcissism's iceberg"

How does this effect or has this effected the market? Possibly deception becomes greater as does flexionic behaviour as people happily "stitch" one another up without batting a eyelid.

.

.

.

Aug

8

 Sports are selling a dream to the kids of one day making it.

People watch sports because we mirror the players' motions in our heads. People imagine they did what the stars did, despite the impossibility of it. But you throw drugs into it and most will reject the idea that they mirror substance abuse. You put drugs into it and it is like finding out the secret ingredient to your favorite restaurant is small dose of poison or that their bakery is rat infested and did not pass the health inspection. It has to be dealt with harshly once exposed, or it is like a player shaving points for the bookies, it can and will destroy the brand.

Body building was still a sport when Arnold did it because it was not known they all took roids. Now it is like pro wrestling, a freak show. Nobody want their kids to become a bodybuilder, except bodybuilders. Finally, it is cheating, nothing to be admired, anymore than messing with accounting to get your bonus while ruining the company. If you had lost money to a drug cheat, it is easier to comprehend. For runners EPO is like playing Russian roulette. Your heart can literally explode, as you dehydrate. Now this is like World com executive cheating and knowing that it could destroy them in the process. Or a Ponzi scheme, wanting the good life at least while it last, despite the misallocation and destruction of wealth that goes well beyond their millions.

Craig Mee writes: 

That's true, Russell, excellent points. What I'm thinking is that sports may in fact drive advances in clean drug and herb technology that benefits the human body more than it wrecks it, or advances other sciences where they need to push limits like space travel. I, too, worry about the children. I wonder what will happen to trying to improve your performance and competition–the very nature of sports. But hopefully what started out a bit dark may lead to good things. 

Chris Cooper writes: 

There already is plenty of overlap between drugs that make you healthier (when taken in moderate doses) and drugs that improve performance. Look at the list of drugs taken by Lance Armstrong, for example: testosterone, hGH, EPO. All of them make you healthier when used moderately. But elite athletes have the motivation to increase dosages to potentially unsafe levels, which is where concerns about safety spring from. I have no problem with the use of PEDs, but I abhor the lying and cheating that normally accompanies it.

Aug

7

 The Brits are making excuses for their poor showing at the swimming world championships by blaming their "fast pool" training venue:

"It seems to have the perfect depth at Ponds Forge [olympic pool] of three metres, because it's all to do with the resistance in the water," he said. "Also, there is the consistency of the water. Because it's got ozone and oxygen in there it's very buoyant, so that allows people to swim faster as well."

"All our swimmers who go there post really fast times," he said. "They then can't replicate it later in the year, and they think that is working against them.

What is the symbolic ozone and oxygen in a market that makes it
sustainable and allows consistency? It's probably another reason not to
over trade across many markets because it's quite difficult to get the
ideal market balance…and then when you have great success you may
think that is the new norm and hamper further progress.

Aug

5

I'm watching a documentary on the execution of a young 22 year old Australian boy in Singapore for heroin trafficking and hearing his lawyer say, "we have to represent him because he's young and stupid" or words to that effect made me think (besides the thinking I was doing about the poor young bloke's doomed plight) how markets behave the same way and how to quantify the stupidity and mistakes a kid makes and compare that to mistakes of an immature and reckless market. There are

many more similarities no doubt. Should we forgive them, what do they need to show to gain our respect and when should older ones lose it? 

At the same time, it made me wonder if there is a risk in being too mature, too educated, and thirsting for too much knowledge and then not being able to turn back and live in the moment. Is there truth in the saying ignorance is bliss. Usually once the whole truth is revealed you realize you were happier being clueless. Knowledge makes you a better person and you can pass on the lessons to yourself and your family. Knowledge brings compassion, understanding and the ability to have an easier life through gaining edges. But it can lead to a blinkered existence for some, striving for goals that do nothing for mankind. The goal becomes cloudy and the initial gains are clearly lost. Ignorance, for some, helps you focus on family and community and the right basic values, while those with knowledge often fail and become confused on their journey.

Jul

29

 Darwin's relationship with Australia started out a little edgy, but all was forgiven…

Extracts below taken from "Darwin, Wallace and the princess in the south"

Trading lesson: Do not stare too long at the screens without having a cup of tea clarity will come with comparison, debate and time.

"Farewell, Australia! you are a rising child, and doubtless some day will reign a great princess in the south: but you are too great and ambitious for affection, yet not great enough for respect. I leave your shores without sorrow or regret."

New Zealand came out far worse, Darwin finding it neither pleasant nor attractive and ranking its Englishmen "the very refuse of society". He was too homesick after four long years abroad to muster up much enthusiasm for new lands, and looked back more fondly on Australia in later diary entries and letters, eventually deciding that Australia was a "fine country".

The letters exchanged by the two friends show that Darwin's thinking about Australia shifted. "Yours is a fine country," he wrote Covington in 1857, "and your children will see it a very great one." The letter also refers to Darwin's dinner in England with Australian sheep-breeder Sir William Macarthur, during which he "drank some admirable" Australian wine. Some years later, feeling more despondent about his life than usual, Darwin wrote to Covington with a most unusual inquiry: "When I think of the future I very often ardently wish I was settled in one of our Colonies… Tell me how far you think a gentleman with capital would get on in New South Wales. (state Aust)

"Australia had evolved into a true princess in the south". It was a place Darwin thought might be better than England. Darwin so disliked sea travel, and was so often ill, that one can hardly imagine him boarding a ship bound for Sydney, but had he done so On the Origin of Species might have been an Australian book, and this story may have turned out very differently.

Darwin's legacy is vast. He changed for all time our picture of life on earth and our place in it. Arguing clearly and powerfully from examples drawn from all over the globe, he showed that nature and humanity are not opposing categories but part of the same flourishing of life. He provided nature with a past that explains what it is today. He did the same for us. His influence lives on in disciplines as diverse as medicine, agriculture, philosophy and psychology.

A century and a half after he gave the world his theory, Charles Darwin remains as relevant as ever.

Note: Darwin was not, as is often supposed, the first to conceive of evolution. His grandfather Erasmus was one of many before him to argue for the concept. Darwin's contribution was to identify natural selection as the mechanism that drives evolution, by recognising that many are born but only the best suited survive and reproduce. Darwin explained this in Origin.

Jul

4

 From The Story of Civilization by Will and Ariel Durant:

History does not tell us just when men passed from hunting to agriculture-perhaps in the Neolithic Age, and through the discovery that grain could be sown to add to the spontaneous growth of wild wheat. We may reasonably assume that the new regime demanded new virtues, and changed some old virtues into vices.

Industriousness became more vital than bravery, regularity and thrift more profitable than violence, peace more victorious than war. Children were economic assets; birth control was made immoral. On the farm the family was the unit of production under the discipline of the father and the seasons, and paternal authority had a firm economic base. Each normal son matured soon in mind and self-support; at fifteen he understood the physical tasks of life as well as he would understand them at forty; all that he needed was land, a plow, and a willing arm.

So he married early, almost as soon as nature wished; he did not fret long under the restraints placed upon premarital relations by the new order of permanent settlements and homes. As for young women, chastity was indispensable, for its loss might bring unprotected motherhood. Monogamy was demanded by the approximate numerical equality of the sexes. For fifteen hundred years this agricultural moral code of continence, early marriage, divorceless monogamy, and multiple maternity maintained itself in Christian Europe and its white colonies.It was a stern code, which produced some of the strongest characters in history.

Gradually, then rapidly and ever more widely, the Industrial Revolution changed the economic form and moral superstructure of European and American life. Men, women, and children left home and family, authority and unity, to work as individuals, individually paid, in factories built to house not men but machines. Every decade the machines multiplied and became more complex; economic maturity (the capacity to support a family) came later; children no longer were economic assets; marriage was delayed; premarital continence became more difficult to maintain. The city offered every discouragement to marriage, but it provided every stimulus and facility for sex.

Women were "emancipated"-i.e., industrialized; and contraceptives enabled them to separate intercourse from pregnancy. The authority of father and mother lost its economic base through the growing individualism of industry. The rebellious youth was no longer constrained by the surveillance of the village; he could hide his sins in the protective anonymity of the city crowd. The progress of science raised the authority of the test tube over that of the crosier; the mechanization of economic production suggested mechanistic materialistic philosophies; education spread religious doubts; morality lost more and more of its supernatural supports. The old agricultural moral code began to die.*

Interestingly, the British historian James Burke speculates humanity has now entered a period of transition, where we're trying to solve life's challenges using "archaic and out-of-date instruments".

"We live with institutions set up in the past to solve the problems of the past, with the technologies and values of the past and we wonder why they don't work too well anymore?" he says.

Peter Saint-Andre writes: 

Nice thought, except it's false. English society was individualistic in the sense described going back as far as records exist (at least to the 1200s). The classic anthropological study here is Alan Macfarlane's 1978 book The Origins of English Individualism. Here is more about Professor Macfarlane.

Also highly recommended is a new book that builds on work by Macfarlane and others, entitled America 3.0.

Jun

24

Dutch Boyd reminisces over what might have been at the epic 2003 World Series of Poker:

It still hurts, thinking about how close I came. When you're deep in the Main Event, it's almost like you're living a dream. It feels like fate. It's predetermined, and you're going to win it, and nothing's going to stand in your way. The universe wants you to win. It wasn't until I was out the door that I realised the universe doesn't care.

Jun

24

A consideration to buy in the aussie equities on the next pullback in price (they had a strong week) as a hedge on rising U.S 10 yields… More learned stock pickers may be able to offer a more detailed analysis. This is just to showcase its potential exposure and potential for upside on this changing market condition.

Based on its current short-duration investment portfolio of almost $32 billion, the reduction in global interest rates compared with four years ago has crimped QBE's annual pre-tax profit by more than $1 billion. But with the Fed flagging to the market and the prospect of interest rates reversing and bonds falling, QBE's earnings are set to benefit significantly. To put this in context, the company delivered a 57 percent jump in investment income in 2012 to $1.2 billion ($809 million from policyholders' money and rest from shareholders' money), dwarfing the $453 million insurance underwriting profit for the year. This was generated from a near $32 billion investment portfolio, comprising mostly cash and short-duration money market instruments (i.e US Bonds).

May

24

 Modern cockroaches have been around since the early Cretaceous period (about 150 million years ago) so they obviously have something going for them. I know at the University of Florida entomology school students were known in the 80s to take Madagascar Hissing Cockroaches home to study and appreciate –  But more recently we have the following:


1.

"For decades, people have been getting rid of cockroaches by setting out bait mixed with poison. But in the late 1980s, in an apartment test kitchen in Florida, something went very wrong.

A killer product stopped working. Cockroach populations there kept rising. Mystified researchers tested and discarded theory after theory until they finally hit on the explanation: In a remarkably rapid display of evolution at work, many of the cockroaches had lost their sweet tooth, rejecting the corn syrup meant to attract them."

2.

Dylan Grice, an analyst formerly with Societe Generale, has written about cockroaches and discussed a simple portfolio strategy (which may be similar to others) named after them. But even he may have underestimated the evolutionary aspects of the roach "algorithm" (and its ability to avoid deadly baits).

'But what I like best about cockroaches isn't just their physical hardiness, it's the simple algorithm they use to survive. According to Richard Bookstaber, that algorithm is "singularly simple and seemingly suboptimal: it moves in the opposite direction of gusts of wind that might signal an approaching predator." And that's it. Simple, suboptimal, but spectacularly robust…'

Craig Mee writes:

Very good point, Pitt. Defense. Defense above all else keeps you in the game. Floundering in volatility and leaving yourself exposed with no control is always a bad move. As in trading so in life.

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May

19

Woodson reminds me of the trader who holds a losing position 10 days in a row until it totally ruins him. He stays with Smith despite the fact that he's a loose cannon,loses the ball by relaxing on offense, goes 1 for 6 from floor continuing his usual shooting percentage,has Anthony giving up as he unbelievably notes Smiths bad play, gives a gratuitous technical foul, and generally tries to get his game back when the season is at a precipice. Yet Woodson stays with him regardless the way a trader holds a losing position until he goes broke. Its pathetic to see this stubbornness. The worst thing that happened to Knicks aside from the sullen Ewing resonance on the team and the three point holdover from Antoni is the lucky game winning shots that smith made at the beginning of the season. One remembers the winning shots he made, two, but he lost 10 or 20 games with the same shots later in the season.

Craig Mee adds:

The cowboy really doesn't have a place in this day and age of professional sport or markets. Players are way too fit and every part of their game is looked at and tested to expose any edge the opposition can utilise. The question now is how on earth are things going to evolve in the next 10 years as the last 10? For sport or the markets … and is there a way to foresee this and be better for it, in knowledge or profit.

May

18

Isn't Flexionism part of human nature just like shouting from the rooftops to crave recognition when trade research and timing techniques pay off. People will always want to be the leading pack animal or drive the herd, under whatever or differing pretense . Does the way one speaks to his broker whether making money or not, under all market conditions tell the world really the type of person he intrisically is. Will we never be rid of the flexion, things are just more transparent now… and its just a itching parasite that begs to test us mentally…

May

15

 The bonds are down about 6 points in the last two weeks. Worse yet, those who bought at the auction a week ago, actually have a loss. There's a famous incident where a great cricketeer was up by 1 run, and then on the last pitch, he rolled the pitch to the batter instead of hurling it. The epithet "it's not cricket" is appropriate to the temporary loss that the flexions and colleagues at the bank have. One would imagine that the upside down man is persona non grata. But more important, who was the player that did the dastardly deed. One believes it was in the mid 70s the last time that the bonds discommoded the colleagues, but what was the team and the player?  

Can you top that? What is the most disgusting incident in the history of (the market) relative to Trevor Chappell rolling the ball you can recall in the market? Was it the mingling of funds without retribution by the Governor? Or the flash crash before the French Inside trading before Leeson announced? To me it was being blindsided by a high bid for bonds that I took from Michael Lewis's firm right before the flow of funds man announced his bullishness. What's yours? 

Update: A kind correspondent says it was Ian Chappell. Worse yet it was a game among the colonies, New Zealand vs. Australia. One can only analogize it to the IMF not being paid back first on account of a bad debt or a country in the EC defaulting on its debt. "It's not cricket". The rain in Brussels might preclude taking the mistress out for a fish dinner.  

Craig Mee writes: 

Victor,

Ian would gasp at being associated with this (as well as most of the nation)… his equally talented brother Greg Captaino instructed the third brother Trevor to do the dastardly underarm deed to "prevent New Zealand scoring the sux they needed to tie"

wiki the "underarm bowling incident of 1981".

Anatoly Veltman writes: 

I'm afraid to say: buying a single lot of SP futures near October 16th, 1987 close. On that triple witching Friday, which followed the relentless two-week decline, the floor rumor had it that one Palindrome had accumulated an outsized long position (the whisper number I heard was over 10,000 lots). I traded Gold and Silver, which closed an hour and half before the SP. Feeling lucky from my metal profits, I decided to take my first plunge into stocks. I thought to myself: if a trading legend is compelled to accumulate that much into this close, then this must be an exceptional value. Still, the novelty of buying stocks and the discomfort of taking a Long position period, made me limit my experiment to a single lot.

Well, as history books will tell you — Black Monday's opening gap down was the largest in all of the preceding stock index futures history! And wouldn't you know it: a very rare opening signal developed by an exclusive research group of like-minded younger traders stared huge in my face that morning. The signal had three conditions, and that's why it would occur so rarely:

1. If a market dropped big into the close AND

2. If the sentiment survey diverged (I.e. went up) AND

3. If a market subsequently gapped down big against such bottom-picker sentiment

Then you must SHORT that gap-down opening!!!What made my one-lot Long the worst position I've ever taken in my trading career was that instead of executing this rare Shorting signal of mine on that Monday morning - I had to digest my damning stupidity of following somebody else's silly Long of Friday. Another younger trader, who was not burdened by any silly Long, did execute the Shorting signal and doubled his Short position once the SP opened down around 260.00 and proceeded to plunge lower. Lo'n' behold, that day ended up printing 190.00; and the younger trader has become the Robin Hood that the community admires today…

anonymous writes: 

I worked for the 'Robin Hood' you mention in your comment below for 3 years.

Although quantitative types such as I believe that he is an example of survivor bias I must say this — I have never witnessed such ferocity, focus and ability to cut losses with alacrity as I saw him demonstrate time after time. (In all fairness I was not fortunate enough to work alongside the Chair at NCZ back in the day….)

A genuine trading talent.

Anatoly Veltman replies: 

Yes, and therein another lesson: that the "survivor bias" is not entirely random. Were you part of that Liberty Plaza office that sported the sign: "Maximize size, minimize risk!"

That particular trade carried the trademark of the genius: nimble lightly to Short a potential bubble over 330.00; adding substantial Short that melted the 300.00 phantom support a month later; and finally doubling up below the 260.00 where the black hole of no bids guaranteed the break of 200.00 before the bell could save the day!

May

14

 I first saw the 'dead eyes' look of a poker player/loser when I was 13 or so. Still gives me restless nights and I know I cannot become that way.

My dad took me into the "stockman's bar" in Billings, Montana to impress upon me what degenerate, greedy people turn into.

Probably another sleepless tonight tormented by that devil.

Gary Rogan asks: 

What is the real difference between gambling and speculation (if you take drinking out of the equation)? Is it having a theory about the odds being better than even and avoiding ruin along the way?

Tim Melvin writes: 

I will leave the math side of that answer to those better qualified than I, but one real variable is the lifestyle and people with whom one associates. A speculator can choose his associates. If you have ever been a guest of the Chair you know he surrounds himself with intelligent cultured people from whom he can learn and whom he can teach. There is good music, old books, chess and fresh fruit. The same holds true for many specs I have been fortunate to know.

Contrast that to the casinos and racetracks where your companions out of necessity are drunks, desperates, pimps, thieves, shylocks, charlatans and tourists from the suburbs. Even if you found a way to beat the big, the world of a professional gambler just is not a pleasant place.

Gibbons Burke writes: 

 Here is something I posted here before on this distinction…

Being called a gambler shouldn't bother a speculator one iota. He is not a gambler; being so called merely establishes the ignorance of the caller. A gambler is one who willingly places his capital at risk in a game where the odds are ineluctably, mathematically or mechanically, set against the player by his counter-party, known as the 'house'. The house sets the odds to its own advantage, and, if, by some wrinkle of skill or fate the gambler wins consistently, the house will summarily eject him from the game as a cheat.

The payoff for gamblers is not necessarily the win, because they inevitably lose, but the play - the rush of the occasional win, the diversion, the community of like minded others. For some, it is a desire to dispose of money in a socially acceptable way without incurring the obligations and responsibilities incurred by giving the money away to others. For some, having some "skin in the game" increases their enjoyment of the event. Sadly, for many, the variable reward on a variable schedule is a form of operant conditioning which reinforces a compulsive addiction to the game.

That said, there are many 'gamblers' who are really speculators, because they participate in games where they develop real edges based on skill, or inside knowledge, and they are not booted for winning. I would include in this number blackjack counters who get away with it, or poker games, where the pot is returned to the players in full, minus a fee to the house for its hospitality*.

Speculators risk their capital in bets with other speculators in a marketplace. The odds are not foreordained by formula or design—for the most part the speculator is in full control of his own destiny, and takes full responsibility for the inevitable losses and misfortunes which he may incur. Speculators pay a 'vig' to the market; real work always involves friction. Someone must pay the light bill. However the market, unlike the casino, does not, often, kick him out of the game for winning, though others may attempt to adapt to or adopt his winning strategies, and the game may change over time requiring the speculator to suss out new rules and regimes.

That said, there are many who are engaged in the pursuit of speculative profits who, by their own lack of skill are really gambling; they are knowingly trading without an identifiable edge. Like gamblers, their utility function is not necessarily to based on growth of their capital. They willingly lose their capital for many reasons, among them: they enjoy the diversion of trading, or the society of other traders, or perhaps they have a psychological need to get rid of lucre obtained by disreputable means.

Reduced to the bare elements: Gamblers are willing losers who occasionally win; speculators are willing winners who occasionally lose.

There is no shame in being called a gambler, either, unless one has succumbed to the play as a compulsion which becomes a destructive vice. Gambling serves a worthwhile function in society: it provides an efficient means to separate valuable capital from those who have no desire to steward it into the hands of those who do, and it often provides the player excellent entertainment and fun in exchange. It's a fair and voluntary trade.

Kim Zussman writes:

One gambles that Ralph and/or Rocky will comment.

Leo Jia adds: 

From the perspective of entering trades, I wonder if one should think in this way:

speculators are willing losers who often win; gamblers are willing winners who often lose.

David Hillman adds: 

It is rare to find a successful drug lord who is also a junkie. 

Craig Mee writes: 

One possible definition might be "a gambler chases fast fixed returns based on luck, while a speculator has time on his side to let the market decide how much his edge is worth."

Bill Rafter comments: 

Perhaps the true Speculator — one who is on the front lines day after day — knows that to win big for his backers, he HAS to gamble. His only advantage is that he can choose when to play. 

 Anton Johnson writes: 

A speculator strives to be professional, honorable, intellectual, serious, analytical, calm, selective and focused.

Whereas the gambler is corrupt, distracted, moody, impulsive, excitable, desperate and superstitious.

Jeff Watson writes: 

I know quite a few gamblers who took their losses like men, gambled in a controlled (but net losing manner), paid their gambling debts before anything else, were first rate sports, family guys, and all around good characters. They just had a monkey on their back. One cannot paint with a broad brush because I have run into some sleazy speculators who make the degenerates that frequent the Jai-Alai Frontons, Dog Tracks, OTB's, etc look like choir boys. 

anonymous writes: 

Guys — this is serious, not platitudinous, and I can say it from having suffered the tragic outcomes of compulsive gambling of another — the difference between gambling and speculating is not the game, the company kept, the location, the desperation or the amounts. The only difference is that a gambler, when asked of his criterion, when asked why he is doing this, will respond with "To make money."

That's how a compulsive gambler responds.

Proper money management, at its foundation, requires the question of criteria be answered appropriately, and in doing so, a plan, a road map to achieving that criteria can be approached.

Anton Johnson writes: 

It's not the market that defines whether a participant is a Gambler or a Speculator, it's his behavior.

Gibbons Burke writes: 

That's the essence of my distinction:

"gamblers are willing losers who occasionally win"

That is, gamblers risk their capital on propositions where the odds are either:

- unknown to them
- cannot be known

- which actual experience has shown to have negative expectation
- or which they know with mathematical precision to be negative

They are rewarded for doing so on a random schedule and a random reward size, which is a pattern of stimulus-response which behavioral scientists have established as one which induces the subject to engage in the behavior the longest without a reward, and creates superstitious as well as compulsive behavior patterns. Because they have traded reason for emotion, they tend not to follow reasonable and disciplined approach to sizing their bets, and often over bet, leading to ruin.

"speculators are willing winners who occasionally lose." That is, speculators risk their capital on propositions where the odds are:

- known to have positive expectation, from (in increasing order of significance) theory, empirical testing, or actual trading experience

They occasionally get unlucky, and have losing streaks, but these players incorporate that risk into the determination of the expectation. Because their approach is reason-based rather than driven by emotion, they usually have disciplined programs for sizing their bets to get the maximum geometric growth of their capital given the characteristics of the return stream, their tolerance for drawdown.

If a player has positive expected value on a bet, then it is not a gamble at all. The house does not gamble. It builds positive expectation into its games. It is a willing winner, although it occasionally loses.

There are positive aspects of gambling, which I have pointed out earlier in the thread and won't belabor. To say that "all gambling is bad" is to take the narrowest view. Gamblers who are willing losers (by my definition all are) provide the opportunities for willing winners (i.e., speculators) to relieve gamblers of the burden of capital they clearly have no desire to hold onto, or are willing to trade in a fair exchange for the excitement of the play, to enable their alcoholic habit, to pass the time, to relieve their boredom, to indulge delusions of grandeur at the hoped-for big win, after which they will quit playing, or combinations of all of the above.

Duncan Coker writes: 

I found Trading & Exchanges by Larry Harris a good book on this topic and he defines all the participants in the exchanges and both gambler and speculators have a role to play. Here is something taken from page 6 that make sense to me: "Gamblers trade to entertain". Speculators to "trade to profit from information they have about future prices."

He divides speculators into those that are well informed versus those that are not. One profits at the expense of the other. Investors "use the markets to move money from the present into the future". Borrowers do the opposite.

May

6

 Has the DNA of the market been changed of late due to the type and nature of trading?

Has the molecular structure which provided the support in floor trading days been abolished with the whizz and bang of market maker's (never there when you need them but screaming that they're the life blood of the market) and DMA strategies that are quicker and more deceptive then a gypsy in Barcelona? Have the flash crashes of late provided the canary, signalling we are ill prepared for these new dynamics and any back-testing prior to 97 is null and void.

Smoke and mirrors, smoke and mirrors.

Apr

22

 It may pay to keep an eye on the Aussie dollar in the near/medium term as it appears things have been coming to a head. A recent article in the Sydney paper mentions 42 dollar fish and chips, and 10 dollar bottles of water being sold. Add this to project investment diminishing, commodity prices on the back burner, banking services employment in some sectors struggling, a government political landscape that possibly has been the worst ever, and further rate cuts on the agenda. The market has been in a yearly range of 1.02-1.06 and it looks like the lower end is about to be tested. The Titan may be now be tested.

Apr

18

It is good to know from the Blodget interview that 142 people including bank and public relations people get Fed releases 1 day in advance on an "embargoed basis". As Willie Sutton said when the Dodgers lost to the Giants, "makes you want to turn yourself in to headquarters". No wonder the market tends to go up the day before favorable employment releases et al.

Craig Mee writes: 

"Embargoed basis"… looks like the medicos do it too. So much room for shenanigans:

"In the case of a trial that I already know I probably want to cover, I will often ask the PR person if I can get access to the slides beforehand, and I assure them that I fully intend to respect the embargo. In most cases my request is turned down, for any number of good reasons: the company doesn't have the slides, the investigator is terrified of an embargo break, etc. But often enough the request works and I'm able to save a lot of time and effort during a busy meeting by preparing some of the work beforehand."

And from the tech stock crowd (from June 2011):

"And there's one more big problem with embargoes: newsmakers haven't been holding up their half of the bargain. Part of the gentlemen's agreement is that if a reporter or a news organization deliberately breaks an embargo, there will retribution. The company or PR firm whose embargo got flouted is supposed to exclude the offending reporter or organization from future embargo offers and pre-briefings. But I don't see that happening any more. TechCrunch, in particular, breaks embargoes with total impunity. Like codependent spouses, companies and their PR reps always seem to rationalize away the breach and go back to Arrington's crew with the next confidential story.

You can't fix the embargo system with more embargoes. It's time—for me, at least—to walk away from the whole bankrupt system."

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