Beating the Market

Dan has posted some great insights into the zero-sum nature of beating the market.  Read here.

Favorite quote from his post:

If the majority of investors
believe they will beat the market return by investing in fundamental
indexing, they will have to earn their above market return at the
expense of other market participants-- but those market participants
aren't anywhere to be had. Those abnormal returns exist because the
"market" has allocated funds in a particular way over the history of
the stock market. If the "market" were to no longer allocate funds that
way, perhaps we would have the indirect benefit of an overall better
functioning economic system, but directly, the market, as a whole,
cannot escape the market return. If everyone believes something to be true, you cannot earn abnormal returns off of it.

Later Trades,

MT

Quote of the Week - Letting Go

"The difficulty lies, not in the new ideas, but escaping the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds." -- John Maynard Keynes

This past weekend I wrapped up a new system I've been working on for several months now.  The sad part is it replaces all the current systems I trade.  So, I'm in the process of closing down my existing systems in order to begin trading this new one.

This kinda stuff is never easy.  One in particular has been very hard to let go.  It was the first system I developed back in 2001.  Named it after my daughter.  This new system has been named after my son.  Go figure.

One important change I have made is trading from an end of week basis to an end of month basis.  The backtesting has gone very well...but the forward testing is ongoing.  If this works out well...I may even push out to a quarterly basis.  Time will tell.

The interesting aspect of this system is it curtails nicely with the recent post by acrary here.  While I'm not anywhere close to what acrary has discovered...I too have found certain slices of the market where specific strategies work well.  And as embarassing as it is to say...all my systems I have built over the past five to six years are trying to capture the same market characteristic.  So, this monthly system really is just a simplification of all my weekly systems targetted at a very specific market slice.

What are my next goals?  Well, I have two...

1)  Figure out a strategy for the other side of the market coin.  The area I have yet to develop a viable system.  This should hopefully increase my rate of return while reducing my risk.  Heck, even if its a net loser...may still reduce my risk.

2)  Begin designing a backtesting engine.  I've done a lot of research over the past few days and had some help from a few technical gurus here at work.  I believe I've got a platform framework in mind.  Surprise, surprise...most of it will be done in Python.  Still much design work to do and testing.  Question for you Python guys and gals...any experience using Pytables?  That's what I'm considering for the time series data store.  Any feedback on Pytables would be much appreciated.

That's it here from a short-timer.  Only have a few days left at my current job before I move away from the great state of Texas.  There will be lots to miss but hopefully much to gain up in my new state of Missouri.

Later Trades,

MT

Quote of the Week

"It is impossible for a man to learn what he thinks he already knows." -- Epictetus

MT

Bill Dance Video - Funny

I haven't laughed this hard in a long time...




Enjoy!

MT

Quote of the Week - Programming

The time at my current employer is coming to an end and my new job soon beginning. I'm currently in the process of gathering up all the systems I have designed and supported over the past 8 years and ensuring the documentation is complete and up-to-date and the code nice and tight. I'll be turning these kids of mine over to another programmer to adopt and support. The programmer taking over the systems is a great guy and will indeed treat them well. But, as I'm cross-checking user guides, code documentation, and data dictionaries...I find motivation in the quote below:

"Always code as if the guy who ends up maintaining your code will be a violent psychopath who knows where you live." -- M. Golding

I've always followed a similar mantra...Always design your systems to be supported by someone else even if it will only be supported by yourself. Because our main goal should be to let our code sail...

"A ship in port is safe, but that is not what ships are built for. I want all the youngsters to sail out to sea and be good ships." -- Grace Hopper

Speaking of software...what software tools do you use in your daily routine? Editors? Backtesters? Spreadsheets? Calculators? Here's a breakdown of my software tool set...

Wealth-Lab - Rapid Prototyping! I typically develop one or two trading systems over a 3 to 6 month time-frame. Each day I'll scribble ideas onto pieces of paper. Trying to find ways to improve the system and use Wealth-Lab to test those ideas out.

R Project - Great batch analysis of Wealth-Lab backtests. I'll run a Wealth-Lab simulation that generates a comma-delimited file of the trade output. Then analyze the CSV file with a batch R script that outputs to the terminal or to HTML. Couldn't live without this tool in backtesting and system studies.

ActiveState ActivePython - I can connect to the TC2005 database with Python and parse the securities anyway I please. Build portfolios by sector, exchange, etc. Oh, and ActiveState includes the Pythonwin IDE which is nice. Update: I also can connect to Wealth-Lab Developer with Python and run chartscripts against custom portfolios. Very cool when watching the Python script open and close the Wealth-Lab Chartscripts for each symbol in the list or table you're reading down.

gVim - This is my notepad replacement. I haven't used it very long...but so far so good. Also experimenting with jEdit. If only someone would develop an EVE Editor for Windows!

Excel - Hey, I know...pretty simple huh? Well, sometimes there's nothing better than Excel in dumping data quickly and testing out various scenarios.

Calcr - If you need to quickly calculate something...this website rocks! It can even handle assignment of variables. Such as x=2; x*2. Also the Google Search Bar always works in a crunch as shown in my Amortization Formula post.

Later Trades,

MT

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Testing Blog Editor

"Rest: the sweet sauce of labor" -- Plutarch

Testing new blog editor, Zoundry.

As you can see...taking it easy today. Actually taking a break before I begin more clean-up around the house. With putting my house up for sale, getting ready for my trip to Missouri, and completing a big project at my current job...I needed a rest! :)

The above picture is something my daughter and I drew a few weeks ago...a picture of her with her toy dog Danny. Just testing the picture insertion feature of this editor.

MT

New Blog Editor and Fortress

Test of new blog editor, Qumana.

By the way, it's really cool to see the excitement surrounding Sun's new Fortress Language:

Deep Market - Fortress Programming Language for Scientific Computing
Wikipedia - Fortress Programming Language
Slashdot - Fortress: The Successor to Fortran?
Sig9 - Fortress

MT

Tags: blog, editor, qumana, fortress