From: gts (gts_2000@yahoo.com)
Date: Wed Jun 11 2003 - 16:48:30 MDT
Dennis Fantoni wrote:
> Do You have some kind of reference to things that have been
> researched and proved not to be useful for predicting stock
> prices?
At one time I did but I'm afraid that was quite a few years ago. Several
academic journals are devoted to the study of financial markets. Those
journals are filled with statistical evidence for the efficient market
hypothesis (EMH). I also did my own statistical research, mainly in a failed
attempt to disprove EMH.
I was the options coordinator for my office of Merrill Lynch, meaning that I
was responsible for overseeing all trading in stock and index options in the
office, and for training and advising new brokers about the subject. I once
wrote a program that ran literally for four entire days analyzing the
complete history of the S+P 100 index (also known as the OEX). My program
discovered what appeared to be a small anomaly to EMH using a complex
formulation of the OEX put/call ratio as an indicator. I made some money
with it but unfortunately the anomaly vanished about six months later,
assuming it really existed in the first place.
> Like for instance technical analysis patterns etc. (
> i'm quite sure that most well known patterns are of no use whatsoever)
Right. They are of no use.
> I have a very hard time getting hold of historic stock data
> that are precise enough to do research on.
I once had the daily history of the Dow Jones Industrials dating back almost
a century in an Excel spreadsheet. I'm sorry I no longer have it and I don't
remember how I obtained it.
> My plan for the next couple of years is somewhat identical to
> the work you seem to have done previously - to shoot down as
> many trading strategies as possible, and perhaps, if i'm
> lucky, find a few that seem to work.
Good luck. I hate to say it but I think your chances of finding one that
works is virtually zero. You might find something that appears to work for
awhile, but don't fall into the trap of believing you've discovered a truly
valid trading system. I am firmly convinced that no trading system can pass
a properly designed statistical test.
It's a shame that most people in the investment business don't understand
statistics. If they did understand statistics then they would quit and get
into a different business, like I did.
> Until i have more results, i'll keep investing like i have
> started out. Being long seemingly undervalued stocks, and
> being short anything real-estate related that is also priced
> high on book value, earnings and has a bad debt/equity ratio.
My advice now, to myself and to my friends and family, is to stay long.
Never go short and never sell unless you really need the money. Own a
reasonably but not overly diversified portfolio. In the long run the market
rewards investors according to the level of risk they take (on the long
side).
Despite occasional coughs and hiccups, the world economy is growing and
there is every reason to believe it will continue to grow. The market grows
with the world economy. This is all anyone needs to know about the market.
-gts
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