Weekly Podcast Episode 7
Week 7: Technical Analysis Mythology, Statistics and Backtesting
Click here to download this podcast!
Links:
colindocherty.com
Weekly Podcast Episode 6
Week 6: Price pt 2
Click here to download this podcast!
I’d advise to upload these images on to your ipod or computer if you’re listening to this on the road, or at least expect to break up the podcast because for the last 15 minutes you’ll need those charts. Enjoy!
Weekly* Podcast Episode 5
Episode 5: Price, Price, and Price.
Click here to download this podcast!
* Sorry for the lack of weekly updates, I’ve been traveling Brazil and haven’t had a chance to record one. From now on it will be weekly, as intended!
Podcast Will Be Skipped This Week
I’ll be taking a plane flight to Brazil tomorrow, so I’ll be delaying the podcast by a week. Be sure to check in next week for another ramble and rave!
Weekly Trading Podcast Episode 4
Episode 4: Alpha
Click here to download this podcast!
“Baupost invested in Enron’s senior debt and he said that would be an example of his favorite type of investment. The situation had a lot of complexity, hard to analyze, a lot of litigation, uncertainty and no one wanted to be associated with anything Enron creating a huge mispricing. Baupost bought the debt for 10-15 cents on the dollar. It comes down to assessing assets minus liabilities. After a few years most of Enron’s assets were cash $16-18 billion but the liabilities were extremely complicated, with over 1,000 subsidiaries. Baupost had one analyst focus solely on Enron for over 4 years and try to figure out its liabilities and how much they would get back on the bonds. Baupost believed that the people liquidating Enron were low balling what they would get back on the bonds. The people liquidating Enron were very pessimistic and they originally estimated that the bonds would get back 17 cents on the dollar at the same time the debt traded for 14-15 cents, Baupost estimated that the debt would recover 30-40 cents and as of now they believe it will be more then 50 cents.”
Alpha can take on many different forms. I speak about alpha as a general concept and how to rationalise it as a trader.
The Trouble With Markets and the Top-Down Approach
Markets, like people, have behaviors and personalities. Sometimes they are calm, simple to analyse, straight forward to observe and analyse. Other times they are puzzling, but depending on the circumstances, participants can be forgiving. Sometimes they defy what we would consider ‘investing laws of gravity’. Many of the anti-US economy proponents are convinced that the markets must have some kind of anti-gravity suit right now, but are sure its effects are only temporary, and the battery will soon run out. They see it as a long running court battle for justice; lots of ups and downs, but confident the system will eventually put the ‘killer’ away, behind ‘bars’ (a.k.a economic purgatory). Others gain nothing but optimism – every price looks good, if the market goes down it just got cheaper which is great, if the market went up their beliefs are reaffirmed, which is even more fantastic.
How does one make sense of these personalities, see through the tantrums, the ecstasy, the deceit, and ultimately make a directional bet on the market? I’ll start off with bluntness about what I believe; its impossible to have any kind of statistical edge with simple a top-down analysis approach. What I mean by this is starting with a macro idea about economy, attempt to correctly price assets, and like a chess player, you make a prediction about how each move will change the dynamic of the game. If you see a natural long term outcome to the ‘chess game’ of the markets, then you bet that way, and hopefully profit. Now, I understand there’s nothing sexier than a top-down analysis. Even sexier is placing bets accordingly. We all consider ourselves above average, we are all aware of the flawed world we live in, and the idea of combining both of those to profit so we can live a life of luxury (and ego stroking) is enticing. But lets take a step back and think about how insane the dynamics are that could affect the price movements of the markets.
Think about how many interested parties whom have interest in the markets. Directly, there’s probably tens of millions of people who want to see certain patterns and asset appreciation (or depreciation). And indirectly, nearly every single person on earth has an optimal market move which will raise their standard of living. Coffee producing peasants in Brazil would love for Starbucks to continue to grow and thrive. Saudi Arabian’s benefit when a war in a major oil producing nation breaks out, raising price thus profit. Politicians based in England enjoy the pound sliding; it means the factories they work in have more incentive to produce, creating job security, extra hours, and perhaps more pay, which means a happy voter. All of these people are very vested in the markets, most are probably unaware of it. But that doesn’t matter, a Saudi Arabian knows if his government has extra budget room, a Briton knows if his factory is doing well, and the peasant in Brazil doesn’t even need to know Starbucks exists or how its new aggressive expansion campaign is coming along – all feel its ramifications. This pressure works up the chain; governments in Saudi Arabia want high oil prices to please its citizens, British export companies want a weaker pound and will probably use government connections to pressure politicians into keeping the pound artificially low during tough economic times. And trade ministers of Brazil are probably very interested in keeping its numbers strong, so they’ll probably make deals with Starbucks to ensure a stable coffee supply in exchange for an agreement about being the supplier of choice. [Read more →]
To Clarify For Some Surprised Listeners
I’ve had a private message or two from people expressing shock about my chart in the post below showing long term Bond performance rate being around 8%. Yes, for us Gen Yers this seems really high – but a quick look at the historical rate for 30-year T-Bonds shows that interest rates today are really, really, really low by historical standards. In fact, you could say they’ve hit a floor in recent times.
Once upon a time, the Federal Reserve didn’t print money as a standard practice.
Weekly Trading Podcast Episode 3
Episode 3: Passive Investing for Beginners
Click here to download this podcast!
Cheat sheet:
Lady Gaga’s Image Strategy Rehash
At a recent festival in the UK, Lady Gaga has created a viral sensation with rumours of her being both a boy and a girl at the same time — Hermaphrodite to use the scientific lingo. What interests me more than the disturbing imagery was the subtle precense of a PR-created matchstick — thrown straight into a pile of leaves and left to burn on its own accord. Last year Lady Gaga hinted at owning boy parts in this interview:
It’s not something that I’m ashamed of, just isn’t something that I go around telling everyone. Yes. I have both male and female genitalia, but I consider myself a female. It’s just a little bit of a penis and really doesn’t interfere much with my life. The reason I haven’t talked about it is that it’s not a big deal to me. Like come on. It’s not like we all go around talking about our vags. I think this is a great opportunity to make other multiple gendered people feel more comfortable with their bodies. I’m sexy, I’m hot. I have both a poon and a peener. Big f*cking deal.
- angrily answering a questioning that no one accused her of or gave a shit about. Then there was this incident at the Glastonbury festival, with some suggesting a bulge was present. Videos on youtube were quickly passed around. And last but not least, her manager referred to the rumour as ‘ridiculous’.
You can’t help but feel this is a B-Grade popstars vain attempt at reaching the next level by imitating a very A-Grade popstar’s trick — keep your sexuality open, keep people guessing, thus keeping them talking. Nevermind the strange lack of first hand accounts (I assume someone would have noticed a potential penis during some point of your pre-celebrity life), or the fact that Lady Gaga herself brought the concept up (google seems to believe it wasn’t a talking point prior to the interview); the strong denial came MONTHS after the initial claim and viral leakage. The timing is pre-planned, calculating, and an amatuer effort to get people talking about her. Even Katy Perry is jealous — her stunts worked successfully, but she never became a big viral sensation.
My whole issue is, where is she going with this? Is this at all related to her music? Does she have point? For example, Prince never used a series of media statements, viral leaks, and strong denials from his camp to generate a rumour and discussion. He flaunted a bizzare look, puts together weird concepts for music and videos, and left the ball in everyone else’s court — who I am, you decide. Lady Gaga doesn’t have the luxury of Prince’s talent, however, so maybe this strategy is good for her. But its still a B-Grade strategy for a B-Grade artist.
Weekly Trading Podcast Episode 2
Episode 2: How I Would Start My Trading Journey
Click here to download this podcast!
Cheat sheet:
© colindocherty.com. Powered by WordPress using the DePo Skinny Theme.