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