Financial Market Observer Effect

I was recently reading Four Pillars of Investing and one part really stuck out to me. A hedge fund manager doing back tests on data could beat the market consistently but was unable to understand why these techniques failed when tried on Wall Street.

To a physicist the answer might seem obvious. It’s known as the observer effect.

Trading is a physical action with an observable effect on the market i.e. people see the shares being traded, the stock price may change. It’s impossible to take money out or put money into the market and not create ripples hence the discrepancy between what happens in real life and back tests. Back testing is a popular method in testing investment strategies but it’s no substitute for the real thing.



I love reading. When I was a kid I read mostly fiction, in particular Fantasy and Sci-Fi. Now I read almost no fiction at all compared to how much non fiction I read. Over the last few years I have noticed a trend ie

I spend as much time choosing a book as I do reading it!

I think like a lot of things in life “You Only Get Out What You Put In” or (YOGOWYPI). I prefer my own version, its shorter and has a certain ring to it “Shit in Shit Out!” (SISO) or if you want to make it sound more exotic (SHISHO).

There is a part of me that wants to read more and faster (with comprehension). In fact I went so far as to buy a book by Tony Buzan on speed reading and this turned out to be a disaster. I keep trying to convince myself that its quality that matters not quantity and that reading one book a month is more than enough if it’s a classic in the field. The feeling still doesn’t go away though, I still want to read faster.

Another thing I tell myself is that I need to be reading in a certain direction and I am not talking about left to right top to bottom I mean that I should at least try to have some theme or direction to what I’m reading. For instance: don’t read esoteric collections of books just because they’re classics. I recently read some Greek classics and when I came back to reading mathematics etc it took me a while to shift back into that mode. A part of me wants to believe that its counter productive to read with no direction and another part of me believes that the constant gear changing keeps me on my toes. The esoteric reading method I’m currently employing is driving my sensible side to distraction, for instance over the last month I have been reading  books on:

Probability Theory
Functional Programming
Stock Market

I am not saying I have finished any of these books yet but I have been reading them and this leads me to another problem. Reading non-fiction is easy but finishing a non-fiction book is very hard depending on your definition of finishing. A loose definition for reading a fictional book is that you have read and understood the plot and read at least 95% of all the content. I would say that with non-fiction if you applied a similar definition ie “read and understood 95% of the material in the book” then I think I’m failing miserably.

For instance, I’ve read Fred Brooks, The Mythical Man Month, cover to cover (twice) and I think I grasped a lot of it but I do not believe I’ve grasped  anywhere near 95% of whats in that book. The same goes for “The Intelligent Investor”, “Peopleware”, “Free To Choose”, “Daily Drucker” and the list goes on.

The other startling thing I’ve learned is that rereading a book does not necesarily mean I get a lot more out of it. Unless I’ve had a chance to study my environment for some time after I’ve read a book I don’t think it has fully sunk in. So rereading does not really benefit me that much unless I’ve had time to digest the first pass. I’m sure there’s some scientific reason for why this is. When I reread a book a year or two later I see things differently etc so can get more out of the book.

Using what I know about my reading habits it didn’t take long to decide what to do. From the following thoughts:

Assume I get 20% from a non-fictional text on each pass.

Each pass of a book cannot be within a year of the other. (I must have had time to study my environment ).

I have a limited amount of time on this earth.

It was easy for me to see that the most important rule I could possibly follow is “Shit In Shit Out!” (SISO).

In conclusion the only firm rule I have and have been able to follow to date is (SISO). I’m not saying I no longer read trash but I’m conscious of it when I’m reading it. Armed with this rule even if a small percentage of what I read sticks then I’ll be OK. I’ve been applying this rule for almost eight years now and I think it’s working. I don’t believe I will ever be a really fast reader and I do not beleive I will ever grasp 95% of any non simplistic non-fictional text in a first pass but I believe that if I apply SISO throughout my reading career I will achieve a lot. My search for other ways to improve how much I can get out of my reading goes on!

Free Websites

I know it has already been done but I have been thinking about getting my own box hosted. The reason for this is that I seem to be using more and more resources on the one I am currently on and I don’t want to be taking the piss since its hosted as a group share box.
This would enable me to do some things that I cannot currently do on the box I’m on at the moment, for instance.
I was thinking about setting up a similar facility to Geocities where people can create an account and they get some disk space to create their own website. The only requirement would be that they display some ads on their site. Other than that it would be free.
If anyone would be interested in this then leave a comment or email me.

Name and Shame

Having just had a rant about the dodgy techniques employed by some advertising agencies I had an idea.
Lets suppose that there is a website dedicated to highlighting techniques used by advertisers with the advertisers names etc. If a lot of bloggers decided to then link to that site the page rank of the site would increase for that particular incident. The worse the incident the more bloggers will feel the need to link to the story which in turn increases the likelihood that the story will be seen by more poeple.
What this means is, if agencies or any other body decide to employ methods that are not particluarly friendly in nature then there is a good chance it will come to the attention of this website and they will get named. When lot of links are inbound to the site then the rank for this negative page will climb higher in the search engines which will hopefull discourage more of the same.
Unfortunately this is not really going to work for real spammers who really don’t care if their name is dragged through the dirt. It would only really work if the people we where naming had an investment “In their Good Name” which limits its usefulness since most of the scum employing these tactics don’t care.

Rss List of Banned IP’s

I was messing around with RSS again and I noticed another possible use for it. There seems to be a lot of abuse on the comments facilty and I was thinking about ways that this could be reduced. One way I though of was to build a database of IP address’s that are banned from using the comments facilty. This is not actually a very good way to do it due to DHCP and various other hacks that can be used to circumvent whatever we do. While playing around I built the following
RSS file of Banned IP address’s.
There are a lost of things that could be done to make this a much more comprehensive list and I am sure I could come up with a simple script to parse the file and insert it into the banned IP list in moveable type (I have not checked this). It would rely on good editing and weeding which is something I have not got the time to do. It would also rely on a trust network of some desrcription to add and remove IP address’s from the list.
What it could be used for is as a list of Possible spam addresses. What I mean is, if you find an IP in this list then check the content of the message or vice versa.
On the other hand you could just take a stroll over to Jay Allens website and sort your spam out that way. I have just installed it and needless to say it was a flawless install. I just hope it does its job as well 😉