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Diary Of An Investment Fund (Part One: The Market Movers)

It is ten past ten, and Mark, the order taker, watches the market with anxious rapture. He has a pending order to push, sell a million shares of some mining stock. As he was trained he examines the bids and offers every five seconds, and in between he watches the stock ticker, which has been sluggish all morning. He can sell anytime, but he waits patiently as he was trained. If he could find a good opening he could sell at a higher price and beat the average: two, maybe three cents better to make the client happy. He waits anxiously.

And then it happens.

The Relative Value Of Gold In A World Of Freely Floating Exchange Rates

"All that is gold does not glitter; not all those that wander are lost."
- J. R. R. Tolkien

Here's another unfinished project of mine that I'd like to share with the FM audience.

Although stock markets have opened this year on a somber note, not all investors are completely negative and anxious about recent market developments. Although we have had quite a bull run in local and US equities since 2002, more recently commodities markets have taken center-stage, notably: Oil and Gold, whose prices have continued to advance in the face of declining equity markets especially after the sub-prime crash last August 2007. Gold, in particular, continues to be viewed as a store of value, despite the abandonment of the gold standard in the 1930s and is used as a hedge against the inflationary effect of fiat currency systems.

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On Friday, January 11, Mr. Toto Cruz of IGC Securities (Broker Code: 140) made a presentation to institutional brokers, analysts and fund managers on their outlook for Philippine Equities in 2008. What follows are some excerpts from that talk which might indicated the flavor of institutional fund strategy in 2008.

Summary

The salient points of the presentation are:

• The world economy continues to be healthy and the US can avoid a recession in 2008.
• The bull market may be aging, but in its early stages.
• Growth premium in emerging markets over developed world will continue.
• Equities in 2008 will remain to be an attractive investment amidst low bond yields and reasonable corporate earnings outlook.

The Ultimate Critic

For a trader, the market is the ultimate critic. However the issue often is: is the trader willing to listen to criticism? I got recently acquainted with the work of Ray Dalio, billionaire manager of the Bridgewater Hedgefund. His philosophy deeply esposes critical thinking:

http://www.bwater.com/home/philosophy.aspx

On The Turtle Myth: Michael Covel vs. Curtis Faith

If you’re a fan of trading literature, the chances are good that you have encountered the term “Turtle” before. What's the big deal about the "Turtles?" I won't attempt to duplicate the already voluminous information found on the web and books about them (I listed tons of links below). But in a nutshell, the “Turtles” are a group of commodity traders who were taught by Chicago speculators Richard Dennis and William Eckhart back in the 1980s. These traders were just people from all walks of life who were recruited and trained by Dennis and Eckhart as part of an experiment to answer the question:

Can trading skill be learned, or is the ability innate to a person?

What Trillanes Can Teach Me About Trading

I was originally going to title this: “Trillanes Could Almost Be A Trader.” However, that was too passive-voice, even for my taste, and that article a potential bandwidth waster if I wasn’t careful. Better to err on side of concise, especially on a blog.

Meanwhile, with events culminating in the aborted uprising at the Manila Peninsula last November 29, the recent life of Senator Antonio Trillanes IV has some traits that could make a great speculator—had he decided to take up capitalism instead of fascism.

The Seasonality Problem ([Not] A Conclusion)

Reflections On An Unfinished Experiment

I brought up The Seasonality Problem as a call for more objectivity. Being objective does not mean becoming obsessed with statistics (although numbers often help). Being objective means being obsessed with the truth.

Truth is an important thing, but it’s a tricky thing. Possible evidence of this “trickiness” is the reality that in over the centuries human civilization has lived on this planet, we’ve only figured out just about four ways to arrive at truth:

1. Authority – If someone we highly regard says something, we presume it to be true. Media and the Church enjoys a lot of this privilege.

2. Rationalization – We can use logical arguments to arrive at truth—or the process of deduction—like Sherlock Holmes.

The Seasonality Problem (Part Eight)

Not All Days Are Equal

One thing that significance will not tell you is whether the information you have just found is worth anything in the practical sense. To find that out, you have to examine and analyze your data.

Let’s revisit the table again:

Apart from the win:loss ratio, which gives you the batting average of each month, it’s also important to know the average magnitude of the returns (average wins/loss) for us to judge the worth of the results. In both cases, October outperforms the other months. Also note something: all of the months have a win:loss ratio higher than 1—meaning the number of winning trades is larger than losing trades. But what makes the winner is the reward:risk ratio—or the size of the wins vs. the size of the losses. In the case of the worst performing months (January and February), even if the number of winning trades exceeded the losing trades, the average size of the wins were smaller than the losses.

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