Feedback in today:
Hello Michael or Michael’s assistant, I have 20 years experience in losing money investing in the stock market. I started well however having purchased far out of the money calls for the IRAQ war in 1990 and made 8x in 48 hours, all down hill since. So I read your book with interest and eager to find an alternative investment method but your explanation to me remains incomplete (or I misunderstood). I had the following comments/questions which would be helpful for readers. 1.) Tax – all the simulations about how much money after X years needs to consider tax. Siegels supposed 6-7% constants don’t address this. 2.) Close fit but not too fit – I understand the overall critic of fundamental investing, there is no algorithm. Your trend following description claims to solve this which it does except for what I see is 1 clear caveat – the not “too” perfect fit. Since the book in my opinion correctly mentions that Stats is a great method this is all undermined by then saying you can’t have too close fit because it might not work in the real world. Unfortunately now from a math perspective the algorithm or trading system isn’t a solvable equation. Unless too close is actually defined in stats terms it means that any trading system could then be justified or refuted based on this unsolved variable. 3.) Trading system for all markets – As I get it there is supposed to be one trading system (algorithm) which you then apply to X number of markets. I don’t understand why. The idea is to have an algorithm to address the non-objective or unsystematic approach of traders in each of these markets. Since these markets are selected as noncorrelated they should have different players involved, therefore logically it would make sense to have a different trading system for each market. I am not a baseball connoisseur but if you had an algorithm for baseball you wouldn’t use the same one for basketball. 4.) Monte carlo – As it is described in the appendix (in my book version), this statisically doesn’t seem possible to me. If you design an algorithm around a set of data and that data can be then changed in ANY way then it means that it could no longer have a trend, therefore I don’t see how an algorithm could still work. The point of the algorithm as I get it is just to model some aspects of human behaviour which then provides an edge. Anyway, good success with your book. The investment market is all about selling hope and you have sold me hope. Regards, Daniel
I am sure folks out there have some eloquent responses!