“There are many, many things that Google could do, that we chose not to do.”
He added:
“One day we had a conversation where we figured we could just try to predict the stock market. And then we decided it was illegal. So we stopped doing that.”
Google is a great search engine. It won the title of search king and Schmidt has made a fortune. Congratulations. However, when he says stuff like this it makes everyone with a pulse think he was just a lucky idiot.
“There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets that you lose. Winning a bad bet can be the most dangerous outcome of all, because a success of that kind can encourage you to take more bad bets in the future. You can also lose a good bet, but if you keep placing good bets, over time, the law of averages will be working for you.”
–Larry Hite, Trader
Continuing:
“Life is nothing more than a series of bets and bets are really nothing more than questions and their answers. There is no real difference between, ‘should I take another hit on this Blackjack hand?’ and ‘Should I get out of the way of that speeding and wildly careening bus?’ Each shares two universal truths: a set of probabilities of potential outcomes and the singular outcome that takes place. Everyday we place hundreds if not thousands of bets – large and small, some seemingly well considered and others made without a second thought. The vast majority of the latter, life’s little gambles made without any thought, might certainly be trivial. ‘Should I tie my shoes?’ Seems to offer no big risk, nor any big reward. While others, such as the aforementioned ‘speeding and wildly careening bus’ would seem to have greater impact on our lives. However, if deciding not to tie your shoes that morning causes you to trip and fall down in the middle of the road when you finally decide to fold your hand and give that careening bus plenty of leeway, well then, in hindsight the trivial has suddenly become paramount.”
–Larry Hite, Trader
Continuing:
“Ancient man had no risk management. Everything was left to ‘fate’ and the whims of the gods. Because ancient man felt that he was merely a victim of circumstance he did not see a need to plan for the future. Therefore, he had no future. In his book Against The Gods: The Remarkable Story Of Risk, Peter Bernstein plots out the history of man’s discovery of the law of probabilities and risk management. Suffice it to say, economic progress seems to run parallel with man’s ability to discover, quantify, and manage risk. Risk and reward are two sides of the same coin. One is not present without the other. You cannot receive the reward unless you are willing to take the risk and you cannot expect to keep that reward unless you learn to mange that risk. It is imperative to master both subjects if you expect to be successful in any endeavor, especially the arena of investing/trading.”
–Source: Pearce Financial LLC
The only thing you can control as you face the markets each day? Your losses.
Asked…if returns such as those posted by Berkshire Hathaway Inc. Chief Executive Officer Warren Buffett — who amassed the world’s third-biggest personal fortune through decades of stock picks and takeovers — are the product of luck or talent, Taleb said both played a part. If given a choice between investing with Buffett and billionaire investor George Soros, Taleb also said he would probably pick the latter. “I am not saying Buffett isn’t as good as Soros,” he said. “I am saying that the probability Soros’s returns come from randomness is much smaller because he did almost everything: he bought currencies, he sold currencies, he did arbitrages. He made a lot more decisions. Buffett followed a strategy to buy companies that had a certain earnings profile, and it worked for him. There is a lot more luck involved in this strategy.”
There are people (read: intellectual twits) who don’t understand the value in this article because the date is “2005”. They think, “It’s 2010, no good now!” The people who think like that are the same people who trust their money to the buy and hold insanity of Fidelity. Everyone gets what they want, right? Off my soapbox and onto a a great excerpt from that article:
“I [Harding] went to Sabre [first firm] because I didn’t want to sit in an investment bank and make money. I wanted to know if you could do it from outside the markets looking in. “Could you be on a desert island and make money trading?” was the question I was asking myself.” Partly this was Harding the scientist exerting an influence, as the efficient market hypothesis was a hot topic amongst academics that studied markets…”With the EMH under consideration I was very interested to know whether the very antithesis of that, technical analysis, had any truth in it. So I went to Sabre very much in the spirit of intellectual curiosity.” According to Harding the prevailing thinking at places like Wood Mackenzie was that there was no intellectual respect for technical analysis. There were a hundred analysts there, consisting of various types of serious people, and the technical analyst was isolated at the end of a row in an out-of-the-way part of the office. His craft was considered intellectually light-weight by his peers and the press. ” I remember being visited by the FT’s Barry Riley in 1988. Within a week there was a side-swipe in print along the lines of “that’s more than the whizzkids with computers can manage,” ” recalls a somewhat wearisome Harding. “But the thing is he and all the other serious investment professionals nodding sagely in agreement were wrong. No amount of looking knowledgeable and smug will make you right if you are wrong in the first place.” This attitude was something that Harding was to get used to over his career. “For eighteen of my 25 years in markets I have received intellectual scorn and derision from everyone – business school professors, senior investment professionals to experienced journalists. But thankfully now it’s different: the battle is won. The enemy is routed. All we are doing now is mopping up the stragglers.” David Harding spent two years at Sabre Fund Management, each day drawing hundreds of charts by hand, like a true craftsman. Every chart was bound into big leather folders, and in turn each chart pattern was copied into other folders. He likens it to an old-fashioned publishing house. Harding noted without irony that the company was run by accountants, and that “there certainly was method in what was done there.” He continues “I certainly regard my time there as the foundation stone of my credentials as an empiricist. There is nothing like drawing thousands of charts by hand to fix them in your mind. In fact I regard this phase of exhausting taxonomy of technical analysis as being like the relationship used to be between biology and taxonomy in the life sciences. Until something like 1830 you had gentlemen scientists collecting leaves and putting them into folders, and it wasn’t until Darwin that he and others started putting some order on it. Only by arranging data and putting it in order can you get any pattern out of it. What AHL and others have done is go beyond the taxonomy and turn trading into a real science.”
Continuing:
“Our sort of approach to markets is a science. It is an unpublished science, but it is a real one. You could get the thick leather bound volumes of papers on it if there was a willingness to “open the kimono”, as the horrible modern expression has it.” “The process of trading our system is like repeatedly drawing different coloured balls from the statisticians apocryphal bag. As we draw out a ball it becomes part of the track record, and we put it back in the bag, but there is no guarantee that the balls will come out in the same order in future.”
Wall Street types love to call trend following trading ‘managed futures’. That makes no sense. Futures are an instrument, NOT a strategy. The largest so-called managed futures firms are trend followers. If you want acceptance, if you want confusion alleviated, then call the strategy something that makes sense. Jerry Parker, an original Turtle who runs a trend following managed futures firm, has said it well:
“I think another mistake we made was defining ourselves as managed futures, where we immediately limit our universe. Is our expertise in that, or is our expertise in systematic trend following, or model development. So maybe we trend follow with Chinese porcelain. Maybe we trend follow with gold and silver, or stock futures, or whatever the client needs. It’s called managed futures because that was the profit center at the FCMs. We’re trading these great systems, and testing, and making sure what we do has worked in the past. And being disciplined, and unemotional, and applying our methods to the futures markets. But limiting our trading to this one group of markets. We need to look at the investment world globally and communicate our expertise of systematic trading. You have Big Blue beating the world chess champion, and everybody saying yeah, that makes sense, I can understand that. We’ve not been able to maximize our opportunities with systematic trading. People look at systematic and computerized trading with too much skepticism. But a day will come when people will see that systematic trend following is one of the best ways to limit risk, and create a portfolio that has some reasonable expectation of making money. We’ve got to be there and ready to take advantage of the opportunity. I think we’ve mis-communicated to our clients what our expertise really is. Systematic trading is going to be better for everyone in the long run. Our methods will work on lots of different markets. The ones that are hot today, the ones that are not hot today. We don’t want to pigeon-hole ourselves as managed futures or commodities.”
Jack Zaner wrote me today with a great quote from David Eckstein (2nd baseman for the San Diego Padres) about what it takes to play successful baseball in a pennant race:
“The ball doesn’t behave differently in September than it did in the spring. It moves no faster. It hops no harder. The trick is to stick to your routine in the face of accumulating anxiety; to play the game as if you were installing widgets on an assembly line. The game doesn’t change unless you allow it (to) in your mind.”
