Re: stat measures


Russell.Martin@xxxxxxx wrote:
> Reef Fish wrote:
> > Russell.Martin@xxxxxxx wrote:
> > > kaferro@xxxxxxxxxxx wrote:
> > > > I know that this is a very basic question, but neither one of you
> > > > actually answered it.
> > >
> > > This problem has come up before. Our "answer" is, in a sense,
> > > that we think you're asking the wrong questions.
> >
> > Yes.
> >
> > > Specifically, I
> > > believe Reef Fish's answer to #2 is that it is all random (unless
> > > I misinterpret his monkey throwing darts model).
> >
> > I thought the money and darts idea is so well known that it's been
> > mentioned in business news dozens of times for the non-statistically
> > trained. It basically encompasses the theories behind the Efficient
> > Market and Random Walk hypotheses, which had been throughly tested
> > by the Chicago group of researchers at the Center for Research in
> > Security Prices.
> >
> > http://gsbwww.uchicago.edu/research/crsp/
> >
> > The market behavior can be summarized in two simple sentences:
> >
> > 1. The prices at the past cannot predict prices in the future.
> >
> > 2. The only present information that can predict future prices
> > are "insider" information that are illegal to use. <e.g.,
> > the illegal use of such info that put the Martha Stewart
> > in jail.>
> >
> > Perhaps my previous post was a bit cryptic for those unfamiliar
> > with the two simple truths above.
>
> I didn't want to claim I knew exactly what you were talking
> about, although I thought I did.
>
> > That was why I said the idea
> > of trying to predict future prices of stock is like the re-
> > invention of wheels that had long been known to be broken ones.
> >
> > Perhaps this follow-up post makes it clearer. There is a VAST
> > amount of finance and economics literature that dealt with this
> > subject.
> >
> > I haven't learned anything new about it since I was rubbing
> > elbows with those researchers (many of whom have since become
> > Nobel winners) over three decades ago. Well, I did learn a
> > tiny little bit new on it since. :-)
> >
> > It's all deja vu.
> >
> > That's why I was surprised that folks are STILL trying to
> > re-invent the same useless wheels.
> >
> > -- Bob.
>
> People are still trying to come up with a perpetual motion
> machine, too.

And actually came VERY close to having a model that almost SEEMS
perpetual, only to be defeated by the immutable laws of physics. :-)

Those trying to re-invent the broken wheel in predicting stocks
is not anywhere in the CLASS of perpetual-machine faciers.

They are more in the class of planting trees to produce green
Franklin bills, or hoarding geese to look for the golden egg.


> The lure of easy riches is strong, and there
> no doubt some people become rich in the stock market (by
> whatever methods). Enough people claim their methods work
> to short circuit the effort to thoroughly investigate the
> field before jumping in.
>
> Cheers,
> Russell

A slightly harder myth to debunk is that fund managers in
Wall Street knows more about the market than a tart throwing
monkey, because SOME funds always outperform the AVERAGE, be
it DOW or SP500 or whatever, and sometimes by a substantial
margin.

But the FACT is, collectively, they consistently UNDER-PERFORM
compared to any market average, because of TRANSACTION COST,
the little games fund managers play to dress up the window
EVERY quarter.

Here's a Programing exercise anyone can do.

Simulate 1,000 dart throwing monkeys in stocks picked for a
portfolio, and let the portfolio sit for ONE QUARTER without
any trade, and look at the gain or loss at the end of one
quarter.

Here's MY prediction:

1. You'll be AMAZED how well some of those monkeys performed,
compared to the DOW or SP500.

2. You'll be AMAZED how these monkeys collectively will outperform
the stock funds managed by Wall Street "financial analysts".

If anyone is programming this, let us know how well my predictions
do. :-)

-- Bob.

.

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