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Hi Michael,
Wednesday, November 10, 2004, 3:42:21 PM, you wrote:
JM> Just read "A Random Walk Down Wall Street" and I think the
JM> failure of their argument is to prove their theory they tested
JM> indicators not systems and don't realise that a small edge with
JM> aggressive money management and risk control can give good
JM> positive returns. However, it gave a good explanation of Alpha
JM> and Beta and has made me re-examine my systems to make sure that
JM> the returns are not just Beta.
It's a very interesting book, one that I come back to again and
again.
JM> Their answer to bubbles or any momentum trading is that by the time the
JM> momentum is confirmed it would be too late to get in and once in you
JM> will lose any gains. If you do make any gains it is random luck.
They are wrong there, on both counts. The problem is that most
traders (IMO) are actually *afraid* of momentum. They hesitate,
suspecting mean reversion is right around the corner. It is, sort
of, but the momentum usually goes to an unimaginable extreme first.
I suspect there is a mean-reversion demon inside most of us. Often,
it's a good demon to have. You just need to slap him around a couple
of times before you listen to him. (^_-)
Anyone who wants to preach "efficient market" theory to me must first
combat the obvious: that an entire company is worth 10 percent more
this week than it was last week, but by then end of next week, it
will be worth the same amount that is was two weeks prior. When
*that* can be explained in terms of efficiency, I will become a
believer. Maybe. ^^_^^
JM> If you point to anyone consistently making money they will say
JM> that in a coin tossing competition somebody will always toss ten
JM> heads in a row.
JM> Personally, they can believe what they like, I'm happy to quietly pick
JM> up the 100 dollar bills from the sidewalk.
Yes. I'm content to pick up the 10,000-yen bills as well. By the
way, our currency was redesigned this week, employing some of the
Australian techniques (although no transparency) against
counterfeiting. Australia has to have the most beautiful currency in
the world, IMO.
Best,
Yuki
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