Jan

20

 One of the imagineering tenets is to bring yourself back to your childhood to create spectacular entertainment. They like to use erector sets and play dough and sand and paints to get their ideas. I tried to go back to my childhood to get some ideas while I was driving and allow the non-logical brain to brainstorm as they recommend. I figure that kids like to rhyme and sing music and swim and do independent things and do jobs and find out about the world.

I started with rhymes. The question is whether the market rhymes. I started with the last x minutes before 10 and looked to see whether there was a one-three rhyme or a one-two rhyme. I found no evidence of a one-two rhyme but much evidence of a one-three rhyme as in "Yankee Doodle." For example, the rhymes at 10 repeat at 12 but not at 11, defined with reasonable precision, with a chance likelihood of 1/20. The subject of how rhyming and childhood play in the market deserves exploration.

Jeff Watson writes:

A common element of video games is that a series of different recurring patterns are interspersed throughout the game. The best players are the ones who practice endlessly and learn to identify and predict the patterns. It would be an interesting study to design a trading platform that mimicked a video game, and allow a group of young video game wizards to try their hand at it. With the right software, would the best video game players be the best traders?

Jim Sogi writes:

Etymology of rhyme from Wikipedia:

The word comes from the Old French rime, derived from Old Frankish language *rim, a Germanic term meaning "series, sequence" attested in Old English (Old English rim - "enumeration, series, numeral") and Old High German rim, ultimately cognate to Old Irish rím, Greek ????µ?? arithmos "number".

An essential part of rhyme is meter, as in the essential and compelling use by Shakespeare of  iambic pentameter. There is something in this structure that captures the human function and rhythm. Di dah di dah di dah, di dah, di dah.

The meter of the market might even be broken down from days, di dah, to the actual timing of the spoken and thought phrases, rather than from hour to hour.

As with jokes, ballads, most nursery rhymes come in sets of threes. It's a natural rhythm seen in natural phenomenon as well. Rhymes have application in markets and quantification.

Phil McDonnell adds:

Some years back my son was an accomplished video game player. He was rated number one on the Microsoft Zone in Warcraft. At the time they had about a million players. Our family often played as a team. I, my son, and daughter played against three other opponents. Our motto was 'The family that slays together, stays together.' That won out against 'The family that preys together, stays together.' My guess would be that became the Madoff family motto at some point.

One time my son left my PC logged on as his screen name. So I sat down to play. At the time my son was number one in the world. Immediately I was messaged by a 16 year old kid with the screen name of psycho. He lived in nearby Redmond and was rated about number three or four in the world at the time. At the time I was rated about number 10 in the world.

We played a 2 vs 2 game against some world ranked players. We kicked their butts. However the reality is that psycho won the game. I was merely a major contributor. After the game was over he asked me why I was off my game. It was clear that there was a huge difference between number one in the World and number 10. I had no choice but to fess up to psycho. The fact is that there is a huge difference between number one and number 10 in terms of performance.

To date, my daughter has been to Singapore for the local software company and is now back in Redmond at headquarters working in Treasury. My son went on to work for a Redmond based group of ex-Microsoft video game people. Then he joined the big Redmond behemoth. Subsequently he was stolen by the big G in Mountain View. His purview was as tech lead on the last software to look at your search results. Presently he is off to Zurich to improve the efficiency of the many big G programmers Euro programmers.

It is fair to say that some traders are destined to be great and others not to. It is also fair to say that many people with video game backgrounds are unrecognized for many reasons.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

From the President of the Old Speculators Club:

I suggest that searching for a rhyme is obvious and that if the market is anything, it is not obvious. A more fruitful idea may be to look for rhyme's forgotten brother: assonance.

"Assonance, (or medial rime) is the agreement in the vowel sounds of two or more words, when the consonant sounds preceding and following these vowels do not agree. Thus, strike and grind, hat and man, 'rime' with each other according to the laws of assonance." (J.W. Bright and R.D. Miller, The Elements of English Versification, Ginn and Company, 1910)

These are harder to identify and when they appear it's difficult to determine whether their existence is by happenstance or design. However, if a sufficient number occur it might be worth examining. But be careful of an overabundance of them:

"Beware of excessive assonance. Any assonance that draws attention to itself is excessive." (John Earle, A Simple Grammar of English Now in Use, Smith, Elder, & Company, 1898)

Since the vowel sound is key, and must be bracketed by non-agreeing consonants, one might look for similar volatility between simultaneously divergent averages (e.g., the S&P and the NAZ).

Russ Sears adds:

This quotation is from an interesting article entitled the "16 Habits of Highly Creative people."

While perhaps the author's ideas need some testing, the quotations alone are worth the read.

"There is no use trying," said Alice. "One can't believe impossible things." "I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for half an hour a day. Why, sometimes I've believed as many as six impossible things before breakfast." - Lewis Carroll

And my favorite, considering 2008: “If you are not confused, you are not thinking clearly" — Tom Peters, quoted by Shalu Wasu

Scott Brooks comments:

Of course the market rhymes…until the poem changes. And the Mistress loves to change the poem when most are least expecting it.

During a secular bull market, the Mistress says: Up, up and away with very little volatility on any given day.

I'll make you money and you'll think it's great

you'll leverage to the hilt until it's too late

For when I change from bull to bear

you will pull out all your hair

If you confuse brains for a bull

it will be ugly when the mistress starts to cull

Culling the quants, the fundamentalist, the techs

You will feel the noose around your neck

When times are great, we all think bulls will always last

Those who do, ignore the past

During a secular bear market the Mistress says: Up today, gone tomorrow

I hope you didn't make your bull returns with money you had to borrow

The market changes from bull to bear so fast

So that if you were leveraged you lost your a$$

For a bull is very different than a bear

I know this for I've lot most of my hair

When times are bad we all think bears will always last

Those who do, ignore the past

So a trader must remember:
All the gains do not matter when you're leverage just gets fatter and fatter

So don't swing for the fences it's okay to settle for just a hit

then you'll win more than you lose and won't find yourself in deep $#!^

And finally, remember to stay out of the poo

losses hurt more than gains help you


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