RE: Investing

From: Gary Miller (garymiller@starband.net)
Date: Wed Jun 11 2003 - 18:05:25 MDT

  • Next message: gts: "RE: Investing"

    >> 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.
     
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    -----Original Message-----
    From: owner-extropians@extropy.org [mailto:owner-extropians@extropy.org]
    On Behalf Of gts
    Sent: Wednesday, June 11, 2003 6:49 PM
    To: extropians@extropy.org
    Subject: RE: Investing

    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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