TaylorTree

Monday, September 17, 2007

Sunday, September 16, 2007

Saturday, September 15, 2007

Thursday, September 06, 2007

Wednesday, September 05, 2007

Tuesday, September 04, 2007

Recent Links 09/04/2007

World Beta - Engineering Targeted Returns and Risk: More On The Endowment Style Of Investing Annotated

- post by taylortree

Frontier Capital Management

SourceForge.net: tkdiff

Great little file compare utility. Graphic front end to the diff program.
note: tested this today against a large file/program (well, not that large in my line of work...but I guess to Google's)...couldn't handle it. But, works great on small files.
- post by taylortree

Google Mondrian: web-based code review and storage

Online code review that works like a blog/wiki. I wonder...is it possible to create a code review system similar to Mondrian within a source management toolset such as subversion? Seems like most of the backend is there already...would only need to add some front end tools to display the changes being committed and allow comments on those changes.
- post by taylortree

Monday, September 03, 2007

Recent Links 09/03/2007

ONLamp.com -- Numerical Python Basics

Numpy basics.
- post by taylortree

Programming in R

Finding Duplicate Elements in an Array :: Phil! Gregory Annotated

Interesting way to find duplicates in an array. Enjoyed the links on the pigeonhold principle and Floyd's cycle-finding algorithm.
- post by taylortree

Now, suppose that the array is of length n and only contains positive
integers less than n. We can be sure (by the pigeonhole principle)
that there is at least one duplicate.

So, how do we find the beginning of the cycle? The easiest approach is to
use Floyd's cycle-finding algorithm. It works roughly like this:
Start at the beginning of the sequence. Keep track of two values (call
them a_i and a_j). At
each step of the algorithm, move a_i one step
along the sequence, but move a_j two steps. Stop
when a_i = a_j.

Wednesday, August 15, 2007

Investor or Gambler?

Tom from InvestorGuide.com sent me an article of his to read regarding the differences between investing and gambling. Tom did a great job in discussing the two terms fairly. Very hard to write an article like that without exposing unknown biases.

I did find a couple of very minor areas where I disagreed with Tom's article. I shared those comments to Tom in an email. But, felt those comments would be helpful to readers of this site. First read Tom's article. Then my comments below...

Tom's article:
There's a big difference between buying a stock after thoroughly researching it and buying a stock by hitting it on a dartboard.

My comments:
Is there really a big difference...in outcome? Sure, the person may feel different about the investment...but based on outcome alone...historical evidence would suggest the odds of success are approximately the same.

Tom's Article:
Gambling - "Any activity in which money is put at risk for the purpose of making a profit, and which is characterized by some or most of the following...no net economic effect results."

My comments:
I would argue that each player in the stock market provides a positive economic effect. The investor provides long-term capital to companies in need of capital. The speculator and gambler provide liquidity. Sure there are negative effects from all players...investors prop up some companies that probably shouldn't receive further funding...and will eventually go bust. And speculators/gamblers can turn liquidity into a frothing market that can cause long-term problems after the swell has subsided.

Of course, your point is true that gamblers' short-term trades may be a net effect with each other...but that activity regardless of reason or length of hold...still provides liquidity for other players in the market.

Basically, remove any player from the game...and the market wouldn't be what it is.

That's it from here where I've got a softball game to prepare for this week. I haven't played softball since my college days. And haven't thrown many balls since my shoulder surgery. Should be an interesting show to say the least.

Later Trades,

MT

Saturday, June 09, 2007

Weekend Readings - Search for Alpha

Sharing some great links found this morning while enjoying a Starbucks coffee and Krispy Kreme doughnut. :-)

A great Quantitative Primer from the Bionic Turtle.

Nice little profile on Parametric Portfolio Associates by Bloomberg Markets Magazine. I enjoyed reading their rebalancing alpha along with their contrarian weighting of individual stocks for each country. In fact, check out Parametric's Research & Whitepapers area...great information to be had. Their paper on Using Statistical Process Control to Monitor Active Managers is one to read a few times this weekend.

One view shared by Parametric coincides with my recent testing of alpha filtering in the U.S. Equities market. Parametric found that smaller countries exhibit less correlation to the broader markets. My guess is due to less investor attention, liquidity issues, and such. In essence the markets are less efficient which enable Parametric to extract alpha (non-commoditized beta) by overweighting these smaller countries in their portfolio compared to the index they track. I found that by increasing the frequency in my alpha calculations...the fewer stocks I found that could beat the market (high alpha). Increasing the frequency to daily in my alpha filter picked up only the most illiquid stocks in the market out of the 20,000 stocks in my database (including the delisted). What does this mean? These stocks are the less followed? Less efficient? Their returns are least effected by the broad market? Short-term...all other stocks are governed by the overall market returns? Only if you extend your time horizon do stocks capture more alpha from the market? My recent testing shows this to be a possibility.

So, what should an investor/trader do? Well, if you're a daytrader, you should pay much more attention to the market in general. The market acts as a powerful force in a stock's short-term returns. If you're an investor...extending your time horizon months if not years is a way to capture more (alpha) than the market gives (beta) to each individual stock. Think about it...anywhere the market is efficient...the market governs the behavior. Only when you drive outside of that efficient zone do you capture non-market behavior. Holding stocks for the very long-term is one road outside of the city.

World Beta finds an interview with Harvard's Endowment manager,El-Erian. El-Erian claims his biggest challenge is overcoming the popularity of the endowment model. Which I tend to agree.

Finally, for you R fans out there...check out the Econometric tools for performance and risk analysis created by Brian G. Peterson and Peter Carl. Need to calculate the Information Ratio, Sharpe Ratio, Sortino Ratio, max drawdowns, rolling returns, CAPM, Kelly Ratio, and Omega on your portfolio's returns? Then this PerformanceAnalytics package could be just the ticket. I have yet to work with this feature-rich package...but have it on my list of to-do's over the coming weeks.

That's it from TaylorTree...where the weather is beautiful, coffee is great, and I've got an afternoon of fishing in my future.

Later Trades,

MT

Monday, May 28, 2007

Manager Focus - Robert B. Gillam

I recently read an interview with McKinley Capital Management founder, Robert B. Gillam. Very interesting guy and investment style. Mr. Gillam setup shop in Alaska of all places. Despite the remote location...he runs a heavy "quant" shop. His work on ranking of stocks based on performance and risk (OR Index) bears further study from yours truly.

What drew me to Mr. Gillam's interview was his research on stocks making new highs and new lows. Mr. Gillam found stocks making new highs on any given day to have a greater than 70% chance of hitting another new high in the next 90 days. And stocks making new lows to have a greater than 65% chance of making another new low in 90 days. Then goes into the how and why of his research. Great stuff!

Check out these articles for further information on Mr. Gillam...

Background on Robert Gillam and McKinley Capital Management.

U.S. Blinders Hinder Stock Pickers. This is a great article covering Mr. Gillam's expansion into international investing.

Here's an article from Mr. Gillam's son, Robert A. Gillam...

STUDY CHALLENGES CONVENTION: Growth, value style distinctions also important in international investing from Pensions & Investments.
This breakup between styles reminds me of an interview with DFA's founder, Rex Sinquefield. Mr. Sinquefield discussed how value stocks were riskier than growth stocks despite their similar volatility. Thus the reason for value stock's higher returns over the years.

Have a great week!

MT

Sunday, May 20, 2007

Weekend Linkfest!

The Beta in Alpha's clothing? (pdf) Bridgewater Associates' detail how various hedge fund's are charging Alpha prices for Beta returns.

How to differentiate Alpha from Beta in those hedge funds? Check out AllAboutAlpha's post titled, Mommy, Where do alphas come from? AllAboutAlpha does a great job of summarizing Andrew Lo's paper, Where Do Alphas Come from?: A New Measure of the Value of Active Investment Management. Lo explains how to differentiate active returns from passive and more importantly what value the active returns add to the total returns of the portfolio. Cool stuff!

Very interesting draft, When Do Stop-Loss Rules Stop Losses?, by Kathryn M. Kaminski and Andrew W. Lo. They find stop-losses improve returns and reduce volatility compared to buy & hold. And stop-out periods were distributed uniformly over time versus only during small market crashes.

MOSERS discusses how to handle residual cash in a portfolio in the following newsletters, Rebalancing and Cash Securitization and Rebalancing II. I was shocked to discover how big of an impact residual cash had on my returns during my market studies. A cash drag indeed! Very important to get that cash, no matter how small, back into the market in order to generate further market returns.

Enjoy your week!

MT

Tuesday, May 01, 2007

Quote of the Week - Busy Bee

"I really believe that success is just getting up one more time than you fall. It doesn't come from one brilliant idea, but from a bunch of small decisions that accumulate over the years. And you shouldn't underestimate the amount of work that's involved, the amount of fear that's involved." -- Roxanne Quimby

I love unconventional success stories. And Inc.com shares a great one with Burt's Bees founder, Roxanne Quimby.

Enjoy Quimby's story? Here are a few more interviews with the busy bee...

After Burt's Bees, What? from Business Week

Interview with Burt's Bees founder, Roxanne Quimby from Hilary Magazine.

Saturday, April 28, 2007

Sky is Falling...

According to this article, Jeremy Grantham believes the sky is falling.

"The bursting of this bubble will be across all countries and all assets, with the probable exception of high-grade bonds," Grantham warned. "Since no similar global event has occurred before, the stresses to the system are likely to be unexpected. All of this is likely to depress confidence and lower economic activity."

But, plenty of hedging is done as to the timing of the fall.

As for timing, he (Grantham) concedes that's impossible to predict. But here's the kicker: Even Grantham thinks you probably need to be bullish right now. The reason? Most bubbles, he notes, go through a short but dramatic "exponential phase" just before they burst. Like Japan in 1989 or the Internet in early 2000.

How does this type of prognostication help anyone...I asks ya's?

Grantham's bold statements and subsequent hedging of bets is something a lot of market pundits do. This allows them to zig and zag at the same time. If the market goes down big, Grantham claim's victory. If the market goes up big, Grantham claim's victory. A win-win scenario.

This type of hedge may prove useful in other pursuits. For example, wouldn't it be nice to lead a programming project and hedge the timeline of the project?

Yes, we will make the May 1st deadline unless we don't.

The above statement doesn't work because it's not wordy enough. Too simple...straight to the point.

We fully expect to meet the May 1st deadline. All components have been reviewed, tested, and verified to meet our stringent requirements. But, there is always the case that problems may arise due to circumstances outside our control. These problems may impact our schedule and possibly result in extending the deadline.

There, that's better. A great hedge!

Well, that's it for me this Saturday morning. I'm taking my daughter fishing today. Of course, the fishing trip may be delayed or cancelled if changes in the Earth's atmosphere produce drops of water from the sky. ;-)

Later Trades,

MT

Monday, April 23, 2007

Quote of the Week

"If you spend some time thinking about it ("ideal position sizing") you will realize that life just isn’t so simple. Every individual has different tolerances for different types of risks. A formula won’t capture all of them and a formula most certainly hides information that might be very valuable." -- Curtis Faith

Great article posted by Curtis today . Discusses some of what I found to be true in regards to the Sharpe Ratio and smoothness of returns. In fact, through much testing I have found using any type of volatility measure in my trading systems (entry, exit, position sizing, etc.) produces sub-par results when real-world results take effect. But, sometimes, those are the best measures we have. So, what do you do?

I think it's important to do what Curtis asks...

I’ll leave you with an exercise. Take your favorite position sizing methodology and then see what might happen if you happened to take the wrong side of a trade using that methodology on September 11th, 2001 or on Black Monday (October 19th, 1987).

In regard to formulas hiding valuable information. Pay attention to your stock data. There's a formula in there adjusting your time series for splits and possibly dividends. The longer term your system is...the more important this adjustment formula will play in your overall results. Common entry/exits formulas such as Average True Range (ATR) become rather out-of-date when processing IBM back in the 1960's. Something for all aspiring long-term trend-followers to consider when backtesting their systems.

Enjoy your week! I'm enjoying my first day of vacation since moving up to Missouri. And what a pretty day I picked out. What to do...what to do... ;-)

Later Trades,

MT

Monday, April 16, 2007

Another Year Down...

Enjoyed a great birthday today. Co-workers took me out for lunch. Wife and kids took me out for dinner. Wife and daughter baked a birthday cake. Between all the eating...received some great presents. Gifts centered on my favorite things...

Movies...some goodies for movie nights at the Taylor House.

Music...received the iPod Nano...and loving it. Can't wait to get back to music during my working hours. Bring some calm to the ADD. Serenity Now!

Coffee...all kinds of great flavors. And a few trips to Starbucks are in my future.

With another year in this world notched in my belt...what have I learned? What wisdom can I share? Well...

1) Moving your wife and kids out of state...miles and miles away from home, family, and friends...is easier than I thought it would be. Of course, we went into this move 100% committed. And chose a great city to live, company to work for, and people to work with.

2) Moving away from your home state draws you closer to your home state. Make sense?

3) Winters are cold in the Midwest! But, the snow is fun! Still upset I found the best place to sled on the last day of the last snow.

4) I miss living in the country...the quietness...remoteness. But, city living sure has its perks. A Starbucks a few blocks away is one of them. ;-)

5) I still don't know why every Fall and Spring when the weather is beautiful...I want to hop in my truck...grab a cup of coffee...throw on some Charlie Robinson and look for houses to fix-up. What's even stranger...a friend of mine noted the same feeling to me today. Maybe it's a guy thing? Or maybe it's because I spent the last 8 years fixing up houses. This is the first year I don't have a fixer-upper to fix-up.

6) So much time is wasted on the market. I know...I've wasted it. But, this wasted time is the filtration process of learning what's important in investing. The more time wasted and time wasted acknowledged...the closer you come to what's important.

7) Learning is hard. Scary. Stressful. And very rewarding. Of course...

"Learning is not compulsory...neither is survival." -- W. Edwards Deming

8) Life is up for grabs. Whatever you want...it is yours to take. It's usually not the brightest, best, or most deserving person that gets the job...raise...or whatever opportunity you wanted that they now have. It's usually the person who wasn't afraid to take it that takes it. The person who won't let things such as not being the brightest, best, or most deserving from getting what they want. One of the most amazing things in life is...Momentum Builds. And as long as reasons prevent you from taking that first step...you'll never get anywhere else than where you are right now.

9) Great mentors are another amazing thing in life. If you don't have one...seek one out. I think this was one of the biggest problems in my life. I attempted to do everything on my own. And this works up to a point...until you get stuck. And when you get stuck...mentors have the ability to...

"share their hindsight which can become your foresight."

10) And finally, birthday's are just another day. Unless you make more of them than that. They are after all...the day you started Life University. And each year marks your progress towards your chosen degree. You do have a chosen degree don't you? Otherwise, how else are you going to graduate? ;-)

Later Trades,

MT

Wednesday, April 11, 2007

Showing Up

"Seventy percent of success in life is showing up." -- Woody Allen

You will earn more respect recovering from a failure than by never failing at all. Weird, I know. But, very very true. Question is...how do you recover from a failure?

Show up, don't give up, pound away at your problem until it is no longer there. Steve Leslie discusses the essentials of "pounding the rock" and never giving up in this post over at Daily Speculations.

"It also provides inspiration for all of us who tend to get absorbed in our own challenges and problems, and serves as a reminder that most of success in life is showing up for work every day and "pounding the rock". And if we stay the course and never yield and keep swinging, eventually the rock will yield and break up and victory will be had. There is a light at the end of the tunnel if we do not quit and no matter the challenge, success is far closer than we think it is."

Steve mentions the Daniel Ruettiger's story...the inspiration for one of my favorite movies of all-time...Rudy. I can still remember watching it with my wife before we were married. Tears, laughs, and all. Good stuff!

MT

Quote of the Week - Losing

"It turns out that it is much easier to make money when you are wrong most of the time. If your trades are losers most of the time, that shows that you are not trying to predict the future. For this reason, you no longer care about the outcome of any particular trade since you expect that trade to lose money. When you expect a trade to lose money, you also realize that the outcome of a particular trade does not indicate anything about your intelligence. Simply put, to win you need to free yourself and your thinking of outcome bias. It does not matter what happens with any particular trade."

-- Curtis Faith in Way of the Turtle --

Thursday, April 05, 2007

Quote of the Week - Explore, Arrive, and Know

We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time.

-- T.S. Eliot

Thursday, March 22, 2007

Brick by Brick, Dr. Steenbarger

Read Dr. Steenbarger's article on A Mechanical Strategy That Has Produced Consistent Stock Market Profits. Awesome! Just awesome!

Wish I would have read it before I posted my Quote of the Week this week. Cause it illustrates my points about Buy and Hold better than my scatterbrained comments ever could. Some great tidbits from Steenbarger's posting...

"Buy and hold over the course of a 25 year investment career has never lost money going back to the start of my historical data in 1901."

"How many in-and-out traders, over the course of a 25-year career, can achieve such consistency and returns? How many actively managed funds can boast of such a record?"

"...an investor needs to tune out the many, many "sky is falling" jeremiads that were issued over those years, as market commentators became convinced that market meltdowns were in the offing. Consider the fact that, for the career investor, those cries of doom have never been vindicated. Never."

And finally...

"If we were to trade in and out of careers every time we became fearful of our current career progress or every time another career looked better, we'd wind up with a lifetime of unfulfilled promise."

Later Trades,

mt