Archive for 'Finance & Stock Market Legends' Category
Diary Of An Investment Fund (Part Three: A Good Start)
13 January 2008“The four most dangerous words in investing are: 'This time it's different.'”
- Sir John Templeton
Starting Point - December 2006
"2006 was A Good Year" states the ING Manager's Report. And good it was. The PSE Index ended the last 12 months up 42.29%, its highest annual gain in the bull run since 2002. The fund beats the index and ends the year with a NAVPU gain of 54.67%, quite a feat considering the fund's size. The rosy outlook for the period is summed up by the Manager's comments: "Prospects are quite positive with fiscal improvements leading to record-low interest rates and a strong Peso, which in turn lay the ground work for a stronger recovery in overall demand and profits."
Diary Of An Investment Fund (Part Two: Following A Fund Manager’s Footprints)
12 January 2008"The hardest thing to explain is the glaringly evident which everybody had decided not to see. "
- Ayn Rand
We should all be so lucky to have an inside peek at a portfolio manager’s playbook. However, I found a way to estimate the trading moves of major funds based on publicly available information. Most investment funds open to retail investors publish monthly fact sheets. Typical content of a fund fact sheet would be key statistics like the following:
In addition to the above, funds also publish a summary of the investments the fund has as of the period end, which can also be found on the fact sheets:
Diary Of An Investment Fund (Part One: The Market Movers)
12 January 2008It 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
10 January 2008"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.
The Ultimate Critic
8 January 2008
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
9 December 2007If 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?
The Seasonality Problem ([Not] A Conclusion)
2 December 2007Reflections 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)
30 November 2007Not 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.