Wednesday, June 30, 2004
Patterns in a sea of randomness
Earlier I wrote on how people tend to look for patterns in random occurences. This eventually spawned a conversation between Thason and myself where we concluded that engineers excel at pattern recognition, and speculated that this would make engineers particularly bad gamblers. However, pattern recognition and gambling can pay off in some games - just don't let the casino catch you doing it...
Well, James Glassman in NRO discussed on June 23rd (I'm behind on my postings) how stock picking is more luck than skill as the underlying processes are too complex to predict with any consistency. Basically Glassman asserts that a golden boy stock picker from one year has no more chance of being a great stock picker in another year than a bunch of monkeys. (In fact if you want a "monkey" to pick your stocks, here's a site that does it.)
Glassman goes even further and derides the structural analyst who attempts to identify trends and floors, ceilings and what not. Basically, Glassman claims that stocks move like a random walk and predicting when upticks and downturns will occur is foolhardy.
However, being an engineer I suspect that there is some underlying process dictating upturns, downturns, and "floors" in the price of stocks. Specifically I think that stock prices can build momentum as bubbles or vacuums (reverse bubbles?) occur as people see a stock going up and down, and I think that there is some relation between P/E ratios, future earnings, profitability, and stock prices that can be used to form the basis of a floor...
Though perhaps I'm just an engineer looking for patterns in a sea of randomness.
Comments(1) |
Well, James Glassman in NRO discussed on June 23rd (I'm behind on my postings) how stock picking is more luck than skill as the underlying processes are too complex to predict with any consistency. Basically Glassman asserts that a golden boy stock picker from one year has no more chance of being a great stock picker in another year than a bunch of monkeys. (In fact if you want a "monkey" to pick your stocks, here's a site that does it.)
Glassman goes even further and derides the structural analyst who attempts to identify trends and floors, ceilings and what not. Basically, Glassman claims that stocks move like a random walk and predicting when upticks and downturns will occur is foolhardy.
However, being an engineer I suspect that there is some underlying process dictating upturns, downturns, and "floors" in the price of stocks. Specifically I think that stock prices can build momentum as bubbles or vacuums (reverse bubbles?) occur as people see a stock going up and down, and I think that there is some relation between P/E ratios, future earnings, profitability, and stock prices that can be used to form the basis of a floor...
Though perhaps I'm just an engineer looking for patterns in a sea of randomness.
Comments(1) |
Bush goes ballistic about other countries being evil and dangerous, because they have weapons of mass destruction. But, he insists on building up even a more deadly supply of nuclear arms right here in the US. What do you think? What is he doing to us, and what is he doing to the world?
Our country is in debt until forever, we don't have jobs, and we live in fear. We have invaded a country and been responsible for thousands of deaths.
We have lost friends and influenced no one. No wonder most of the world thinks we suck. Thanks to what george bush has done to our country during the past three years, we do!
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Our country is in debt until forever, we don't have jobs, and we live in fear. We have invaded a country and been responsible for thousands of deaths.
We have lost friends and influenced no one. No wonder most of the world thinks we suck. Thanks to what george bush has done to our country during the past three years, we do!
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