Quotes | Compendium

Trader: (noun) a person that risks their own money for freedom rather than exchanging their freedom for money
Wherever five economists were gathered there were six opinions and two of them belong to John Maynard Keynes
This high-yield market resembles a nap on a railway track. One afternoon, the surprise train would run you over.
All your economic models are premised on people being smart and rational, and yet all the people you know are idiots
The market movements in the eighteen months after September 11, 2001, were far smaller than the ones that we faced in the eighteen months prior—but somehow in the mind of investors they were very volatile
Let us assume that the reader shared my opinion, that the market over the next week had a 70% probability of going up and 30% probability of going down. However, let us say that it would go up by 1% on average, while it could go down by an average of 10%. What would the reader do? Is the reader bullish or bearish?
What looks like success is often just patience.
Umwertung aller Werte
The stocks and bonds that everyone thought were the healthiest fell the most in price because they were the easiest to sell.
Risk versus return: Measured by volatility not by compounding
Finance has an annoying way of wasting time to appear rigorous. Too much attempt to have an Engineering "look" when it's really just risk taking.
Placing large bets on an unknown future is worse than gambling because at least in gambling you know the odds
Rely on a bipolar portfolio, with one segment for good news and one for bad news, reaching for the most volatile asset classes to do the job
He does not mind losing small change. “I love taking small losses,”he says. “I just need my winners to be large.”
Adding to the Winner
Skewness, Asymmetry, Induction; Skewness issue; it does not matter how frequently something succeeds if failure is too costly to bear.
Darwinism and evolution are concepts that are misunderstood in the nonbiological world.
The terms “bull” and “bear” have limited meaning outside of zoology.
Don't be fooled by rising and falling tides of the market
If something cannot go on forever, it will stop - Charles P Kindleberger
Manage for others changes the game
Success in the stock market can only be achieved if you make asymmetric bets
The idea that to make a decision, you need to focus on the consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty.
Sailing Versus Rowing: Active Versus Passive
Hedge funds are to paraphrase peter lynch diworsifiers (Mark Spitznagel)
In order to succeed you must first survive
Psychologists have shown that most people prefer to make $70,000 when others around them are making $60,000 than to make $80,000 when others around them are making $90,000
This high-yield market resembles a nap on a railway track. One afternoon, the surprise train would run you over
I start with the platitude that one cannot judge a performance in any given field (war, politics, medicine, investments) by the results, but by the costs of the alternative (i.e., if history played out in a different way)
Go to the airport and ask travelers en route to some remote destination how much they would pay for an insurance policy paying, say, a million tugrits (the currency of Mongolia) if they died during the trip (for any reason).Then ask another collection of travelers how much they would pay for insurance that pays the same in the event of death from a terrorist act (and only a terrorist act). Guess which one would command a higher price? Odds are that people would rather pay for the second policy (although the former includes death from terrorism)
The market movements in the eighteen months after September 11, 2001, were far smaller than the ones that we faced in the eighteen months prior—but somehow in the mind of investors they were very volatile
Let us assume that the reader shared my opinion, that the market over the next week had a 70% probability of going up and 30% probability of going down. However, let us say that it would go up by 1% on average, while it could go down by an average of 10%. What would the reader do? Is the reader bullish or bearish?
Note that, unlike economists, they conducted experiments, true controlled experiments of a repeatable nature, that can be done in Ulan Bator, Mongolia, tomorrow if necessary. Conventional economists do not have this luxury as they observe the past and make lengthy and mathematical comments, then bicker with each other about them
“My net worth will end up at $99,000 or $101,500 after the gamble” or do you say “I lose $1,000 or make $1,500?”
With each step along the way is random, yet dependent on the previous step—a hidden Markov model. A speech-recognition system’s job was to take a set of observed sounds, crunch the probabilities, and make the best possible guess about the “hidden” sequences of words that could have generated those sounds. To do that, the IBM researchers employed the Baum-Welch algorithm
Short selling may seem crude, but it serves a crucial social good: it helps keep markets efficient. If the only people who can sell a stock are the ones who already own it, people who have information that could be bad for the company often don’t have any way of affecting market prices. This would mean that information could be available that isn’t reflected in the stock price, because the people who have access to the information aren’t able to participate in the market.
Stocks will tend to return even if they disappear briefly. The classic example is pairs trading. Pairs trading works by observing that some companies’ stock prices are usually closely correlated. Consider Pepsi and Coca-Cola. Virtually any news that isn’t company-specific is likely to affect Pepsi’s products in just the same way as Coca-Cola’s, which means that the two stock prices usually track one another. But changes in the two companies’ prices don’t always occur simultaneously, so sometimes the prices get out of whack compared to their long-term behavior. If Pepsi goes up a little bit but Coca-Cola doesn’t, upsetting the usual relationship, you buy Coca-Cola and sell Pepsi because you have good reason to think that the two prices will soon revert to normal.
This pattern is called log-periodic because the time between the smaller events decreases in a particular way, related to the logarithm of the time.
The methods Sornette has used to identify bubbles and predict when crashes will occur can also be used to identify a situation that Sornette has called an anti-bubble. These are cases in which stock prices are artificially low. On January 25, 1999, for instance, Sornette posted a paper on an online physics archive claiming that, based on his observation of log-periodic patterns in the market data, the Japanese Nikkei stock index was in the midst of an anti-bubble.
Correcting this problem led to Osborne’s hypothesis that returns, not prices, are normally distributed. Mandelbrot’s realization that normal and log-normal distributions cannot capture the full wildness of financial markets
All your economic models are premised on people being smart and rational, and yet all the people you know are idiots
Mediocristan risks are subjected to the Chernoff bound. The Chernoff bound can be explained as follows. The probability that the number of people who drown in their bathtubs in the United States doubles next year—assuming no changes in population or bathtubs—is one per several trillions lifetimes of the universe. This cannot be said about the doubling of the number of people killed by terrorism
Instead, they proposed searching for a small number of “macroscopic variables” capable of predicting the market’s short-term behavior. They posited that the market had as many as eight underlying “states”—such as “high variance,” when stocks experienced larger-than-average moves, and “good,” when shares generally rose.
Their model foreshadowed revolutions in finance—including factor investing, the use of models based on unobservable states, and other forms of quantitative investing
The Baum-Welch algorithm provided a way to estimate probabilities and parameters within these complex sequences with little more information than the output of the processes
Ax concluded it was time to bring in someone with experience developing stochastic equations, the broader family of equations to which Markov chains belong
Though it clearly had elements of randomness, much like the weather, mathematicians like Simons and Ax would argue that a probability distribution could capture futures prices as well as any other stochastic process
Buying investments as they became more expensive and selling them as they fell in value was at odds with leading academic theory, which recommended buying when prices cheapened and taking money off the table when prices richened
An order to sell a chunk of Coke shares, for instance, might send that stock down a percentage point or even two, even as Pepsi barely moved. Once the effect of their Coke stock selling wore off, the spread between the shares reverted to the norm, which made sense, since there had been no reason for Coke’s drop other than Morgan Stanley’s activity. Bamberger sensed opportunity. If the bank created a database tracking the historic prices of various paired stocks, it could profit simply by betting on the return of these price-spreads to their historic levels after block trades or other unusual activity. Bamberger’s bosses were swayed, setting him up with half a million dollars and a small staff. Bamberger began developing computer programs to take advantage of “temporary blips” of paired shares.
Johansen test confirms the CADF test's conclusion that this pair is cointegrating. But, more interestingly, we add another ETF to the mix: IGE, an ETF consisting of natural resource stocks. We will see how many cointegrating relations can be found from these three price series.
The solution we came up with was to pick on one particular emotion for which we know we have substantive data.’ ‘So which one have you picked?’ ‘Fear.’
‘As most of you will be aware, the Chicago Board of Exchange operates what is known as the S and P 500 Volatility Index, or VIX. This has been running, in one form or another, for seventeen years. It’s a ticker, for want of a better word, tracking the price of options – calls and puts – on stocks traded in the S and P 500. If you want the math, it’s calculated as the square root of the par variance swap rate for a thirty-day term, quoted as an annualised variance.
‘The volatility implied by the VIX can be to the up side as well as the down side.’ ‘We take account of that,’ said Hoffmann. ‘In our metrics, optimism can be measured as anything from an absence of fear to a reaction against fear. Bear in mind that fear doesn’t just mean a broad market panic and a flight to safety. There is also what we call a “clinging” effect, when a stock is held in defiance of reason, and an “adrenalin” effect, when a stock rises strongly in value.
You praise any venture that claims to be nonprofit, and damn the men who made the profits that make the venture possible. You regard as ‘in the public interest’ any project serving those who do not pay; it is not in the public interest to provide any services for those who do the paying
Traditional systems treat errors as failures to be minimized. Antifragile systems treat errors as information sources to be exploited.
Capitalism works not just by allowing upward mobility, but by accelerating its downward equivalent. In wealth, for example, only 20% of billionaire families in the U.S. remain after 20 years, but in Europe, it’s the reverse — concentration is getting stickier, and we’re heading toward the more stultified European version globally.
Involutie. te veel fabrieken en te veel spullen en te weinig vraag.
HEDGE FUNDS ARE, TO PARAPHRASE PETER LYNCH, 'DIWORSIFIERS" - Mark Spitznagel

Precautionary principle

Doubt about pilot, would you fly?
Glass of water, there is no evidence that it is poisonous. There is no evidence that gmo 's are harmful.