Monday, September 03, 2007

Recent Links 09/03/2007 -- Numerical Python Basics

Programming in R

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

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 ai and aj). At
    each step of the algorithm, move ai one step
    along the sequence, but move aj two steps. Stop
    when ai = aj.

      Wednesday, August 15, 2007

      Investor or Gambler?

      Tom from 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 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 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,


      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,


      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!


      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!


      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 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,


      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,


      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 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 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'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 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,


      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 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!


      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?"

      " 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,


      Monday, March 19, 2007

      Quote of the Week

      "Brick by brick my citizens, brick by brick" -- Emperor Hadrian of Rome
      I haven't posted much in awhile. Mainly because the more I learn the less I know. The less I feel I can share. The less certain I feel about things. The study of the market is a strange bird. So different than anything else I've dug into.

      Investing is like programming yet you're switching languages, tools, platforms, users, business rules, etc. every week, day, hour, or even minute.

      Just when you feel comfortable about your knowledge...your experience...the market changes on you. So, you're left with a few options. You can...

      1) Pontificate. Throw lack of knowledge to the wind and show off that big chip on your shoulder. Pontificate at will as to what the market will and won't do. If your wrong...then so what? Pontificate a little more...and a little louder. Don't stray from your point of view. You are a contrarian after all. Take solice in that.

      2) Daytrade. Since the market changes so fast and so often...embrace it. Change with it. You gain a lot of experience this doubt about it. Always expanding, learning...and never getting comfortable. Those are the keys to success with this option. Note: Swing traders fall into this category as well. In fact, you'll find most daytraders have swingtraded and swingtraders have daytraded. All depends upon the speed in which the market is changing and the speed in which the person is comfortable with the changes. :-)

      3) Invest for the long haul. Forego all the hip hopping around of the market. Buy and sit on your hands. Yes, I said that right. Cast that chip off your shoulder. Your grasp or lack-of on the ever changing cycles. Give up the notion that working harder equals greater returns. And most importantly, give up the ever incessant discussion as to why the market is top-heavy...bottomed...or bubblicious. Realize that your returns are generated from the market...not from you. Ouch! How's that for an ego buster.

      If you haven't figured it out...I've chosen all 3 options at one time or another. But, for the past year I've stuck with option 3 - Buy and Hold (with a trailing stop). And I won't lie to's lonely. Tough. Aggravating. For a workaholic like has been especially difficult to let the market generate my returns. But, the method is working. Brick by brick.

      So, sorry for the lack of posts. Besides not having much to say about the market...I have been busy with completing my backtesting platform project. And for the most part, it's complete. The cool thing is I'm now able to test at the portfolio level all systems and allocations across thousands of stocks (20,000+). In fact, here are 3 things I've learned from this project that is market-related:

      1) Important to test your ideas on the market without cash constraints. Because using cash limits your trades. And you need to see the impact of all trades in order to judge whether your idea is worthy of attention. Boot-strap simulations prove helpful here as well.

      2) Test ideas with cash constraints. You may have an idea that does amazingly well...but just a few trades will wipe your cash out. And if you wipe your cash're wiped out.

      3) Carefully optimize your logic. Curtis Faith explained it better than anyone I've read as to how to best optimize your system. Avoiding the top of the curve is the key.

      And here are 3 things I've learned from this project that is programming-related:

      1) When looking for the fastest way to read and write vast amounts of simple data...avoid the plethora of databases out there. I've tried everything from PostgreSQL, MySQL, SQLite, BDM, SQL Server, KirbyBase, and many more. Nothing and I mean nothing even comes close to plain vanilla CSV files. Nothing! If you can's even faster to sequentially read a CSV file to pickup a record by date than to query a db directly for that row.

      2) Python is much faster than Ruby when it comes to processing CSV files and not much slower than C.

      3) Programming a backtesting platform is not complicated...actually very simple. But, completing this project sure did test me. Why are the simplest things the hardest to program?

      Later Trades,


      Friday, March 16, 2007

      A New Blogger - Curtis Faith

      Curtis Faith has a new blog, Way of the Turtle. Check it out. Loved the On Writing a Book post. Great start Curtis!

      Also, I urge you to check out Mr. Faith's new book, Way of the Turtle. Good stuff!

      Later Trades,


      Thursday, January 11, 2007

      Quote of the Week - (2007-01-11)

      "You better know whatcha wanna to do, before somebody knows it for you." -- Charles Farmer in The Astronaut Farmer
      Hope everyone is having a great week. Mine's been busy as ever. I hope to catch up on some reading over the weekend. Finish up the book, Trend Trading by Kedrick Brown. Dig in a bit more into the C language. Yes, I said C...the latin of programming languages.

      I downloaded the MinGW compiler this week and wrote my first "Hello World" program in C. Then proceeded to open and read a CSV file. Whoa! Stop the bus! Not as simple as R, Ruby, Python, Pascal, and Cobol. Much to learn, much to learn.

      Later Trades,


      Tuesday, January 02, 2007

      Quote of the Week (2007-01-02)

      Shlemiel gets a job as a street painter, painting the dotted lines down the middle of the road. On the first day he takes a can of paint out to the road and finishes 300 yards of the road. "That's pretty good!" says his boss, "you're a fast worker!" and pays him a kopeck.

      The next day Shlemiel only gets 150 yards done. "Well, that's not nearly as good as yesterday, but you're still a fast worker. 150 yards is respectable," and pays him a kopeck.

      The next day Shlemiel paints 30 yards of the road. "Only 30!" shouts his boss. "That's unacceptable! On the first day you did ten times that much work! What's going on?" "I can't help it," says Shlemiel. "Every day I get farther and farther away from the paint can!" -- Shlemiel the painter algorithm
      Ran across this great interview of Joel Spolsky from Salon back in 2004. The dude has some great things to say...

      In reference to the various software development methodologies:
      There's certainly a lot of faux methodologies, what I often call "big-M" methodologies, extreme programming being a very popular one right now. And even when they're reflecting good ideas or best practices, the real goal of the methodologies is to sell books, not to actually solve anybody's problem. And selling the books is actually just a way to sell consulting engagements that the people who write those books do at high cost; that's their career -- giving speeches to people working for very boring companies on how to do software better.

      In reference to creating software that will automatically translate a user's desire into code:
      The fundamental problem that you're trying to solve here is that humans think of things in vague, mushy terms. In order to visualize something, they don't have to actually visualize every part of it. Whereas the programmer, in order to actually implement that thing, to create it, needs to have every part specified.


      So your brain doesn't actually work the way a computer works. Your brain doesn't assume that there's all this input coming in and then process it. Instead, it just has a variety of senses available to it, and it picks the ones it wants to answer whatever questions it has right now. So you ask questions, and your eye goes and finds out the information it needs. So you're used to thinking that you have the big picture , and you don't.

      (continued some more...)

      And so what a programmer is doing when they translate a quote unquote spec into quote unquote code, although it seems like a translation process, what they're actually doing is filling in lots and lots of details. And as programmers are wont to do, they're trying to take something, the vague thing that the humans want, and make it very, very specific, which is the kind of thing the computer wants. That's not really a translation; it's more of an interpretation. It's a very hard thing to do.
      Read Joel's Back to Basics post for more interesting tidbits on Shlemiel the painter algorithm, Pascal strings, and my favorite...XML performance issues. I've developed and supported EDI transaction processing for over 9 years and witnessed first hand the problems Joel discusses with XML. Great stuff!

      Happy New Year!


      Sunday, December 24, 2006

      Happy Holidays!

      Twas the night before Christmas, when all through the house
      Not a creature was stirring, well, except for TaylorTree.

      I wish you and your family a wonderful Holiday Season!


      Sunday, December 17, 2006

      Quote of the Week - Know Thyself

      Boy: "Do not try and bend the spoon. It is impossible. Instead, only try to realize the truth."

      Neo: "What truth?"

      Boy: "There is no spoon."

      Neo: "There is no spoon?"

      Boy: "Then you'll see that it is not the spoon that is only yourself."

      -- from the Matrix (one of my all-time favorite movies)

      Hope all is well. I'm as busy as a, buzz, buzz.

      Later Trades,


      Wednesday, December 06, 2006

      Thread of the Week - Stock Distributions

      Eric Crittenden shared an interesting study of stock distributions over at the Trading Blox Forum.

      How many of you look at the Annual Compounded Returns graph and immediately, I gotta get me some of those 3,000 plus 10% to 20% returns! If I can just find an edge, a better indicator, profit targets, something to capture them. Work it like a Casino, baby!

      How many view the graph and have the 344 100% or more returns catch your eye? Or better yet...stare in amazement at the Terminal Wealth Relative graph and its 2,000 plus returns of 500% or more. Count me in that camp.

      This study really confirms what the market is all about. Unlimited gains and limited losses. If you time the market or cap your profits in order to capture and/or protect those small' Eric says...
      "virtually guarantee to participate fully in the left side of the distribution and not in a positive way."

      Really after giving this study more seems after you set yourself up for success via capturing the right side of the is then just a matter of managing risk. Right? And not from the sense of your initial risk in the stock via volatility based position sizing. But, from maintaining a certain risk profile throughout the entirety of the trade. As these positions move further in your favor...I would assume their risk profiles could differ greatly from the original risk set forth.

      Again, interesting study. Thanks Eric!

      Later Trades,


      Monday, December 04, 2006

      Quote of the Week

      Caston glared. "Observation selection effects are totally commonplace. At the supermarket, have you ever noticed how often you find yourself in the longer checkout lane? Why is that? Because those are the lines with the most people in them. Let's say I told you that Mr. Smith, about whom you knew nothing at all, was standing in one of those checkout lines, and you had to predict which one, based only on knowing how many people were in each line."

      "There'd be no way to know."

      "But inference is about probabilities. And the most probable outcome, obviously, is that he's in the line with the most people in it." Once you step back and consider yourself from an outsider's perspective, it becomes self-evident. The slowest traffic lane is the one with the most cars in it. The laws of probability say that any given driver is most likely to be in that lane. That means you. It's not bad luck or delusion that makes you think the other lanes of traffic are going faster. More often than not, they are going faster."
      Great quote from a great book, The Ambler Warning by Robert Ludlum.

      If you haven't read should.

      The book, while not about investing or the market, contains two fictional characters who fit well with characters in the investment world. One of the characters lives by gut feel alone. Instinct. The other...100% logic, statistics, probabilities, just the facts ma'm. Interesting to see the development of these characters and how they find common ground.

      Later Trades,


      Friday, December 01, 2006

      First Snow!

      Received our first Snow of the year and it is wonderful! For a Texas boy who has never been around snow before...I feel like a kid at Christmas. Fun stuff.


      Friday, November 24, 2006

      Aquamarine Fund Diary, Buffett, and Owning a Business

      You can tell from the volatility breakout in my blog posts...that I have some time on my hands.  :)

      Found some great posts by the Aquamarine Fund Diary.  Here's a post on Warren Buffett and the Chicago Graduate School of Business - trip to Omaha.  I really liked the following bullets:
      • Associate with people who are better than you. Marry up, employ up,
        work for your heroes. Associations rub off. Tell me your heroes, I’ll
        tell you how you’ll turn out. People in the room (us) have IQ, energy,
        and smarts to burn. No bad results will be due to deficiencies in this
      • Take one hour. Think of the one classmate who you’d like to own 10%
        of for the rest of their life. 10% of all of their future income. What
        do you think about? The person who others admire and want to work with.
        Person who works hard and gives others credit. It’s simple. Select
        those qualities for yourself.
      • "Now the fun part” who would you want to short? The guy who turns other people off.
      I also liked this interview of Tom Murphy in The Wisdom of Tom Murphy.  In the full interview Murphy  encourages
      "people, particularly those who are young but also experienced enough to know what's going on, to try starting a business because the rewards of being your own boss are wonderful."
      Okay, readers...if you own your own business...give up the goods on how you came to the realization you wanted to run a business instead of working for whatever company you were working for.  Why did you feel the risk was worth taking?  And what business did you choose...something you were familiar with?  Something new?

      And for those working for others...if you have thoughts of running a business someday...what type of business would you like to run?  And why?


      Thursday, November 23, 2006

      Quote of the Week - We're Just Ants!

      "If you study an ant colony, you will find it has a life cycle — it’s robust, it’s adaptive. However, if you ask any individual ant what’s going on, they have no clue. They’re working with local information and local interaction. I think there’s a very clear parallel to markets. How do markets get to be efficient? The answer is it’s an interaction among a lot of diverse investors. The aggregation mechanism to bring the information together is the stock exchange, and then what emerges from that is the stock market.

      The important takeaway is it’s impossible to understand the market by interviewing individual investors because each investor only has a partial piece of the picture. It’s the aggregation that allows the full picture to emerge. What the ant colonies teach us is that in markets, cause and effect are very difficult to pin down. Sometimes we like to think that the experts on TV or the pundits quoted in the Wall Street Journal know what’s going on. They’re really just ants." -- Michael Mauboussin
      The above quote comes from Mauboussin's article, "Guppies, ants, and golf swings: Mental models for investors." This quote really defines the methodology I have adopted in trading. Forget how you feel about the stock. It doesn't matter. Forget how you feel about the doesn't matter. Who cares if we're in a housing bubble, USD is going lower, inflation, deflation, yakkity-yak...don't come back. The only thing that matters is what the market thinks.

      The market is really just a glorified voting system. You may believe Google, Starbucks or Milli Vanilli is road kill. But, if the vast majority of participants believe it's the next best thing...then it is. I know, I know better....but you're just one vote...amongst millions of voters. Know matter how strongly you feel about's just a drop in the bucket.

      So, why fight it? I ask's ya's!?! Just go with it. Embrace your inner ant.


      Happy Thanksgiving!!!

      Just want to wish everyone a Safe and Happy Thanksgiving!  This will be our first Thanksgiving in Missouri and we're really looking forward to it.  Plus, it will be our son's first Thanksgiving.

      The best part is I have 4 full days of complete rest ahead of me.  Definitely time for catching a movie or two.  And many other things I've put off for far too long.

      I leave you with a rather interesting thread over at the Trading Blox Forum on Pre-emptive money management.  Provides food for thought on volatility based position sizing.  Is volatility predictable?  If so, should we adjust our position size to anticipated changes in volatilty?  Since our current position size is based on historical volatility.

      This also begs the question as to the use of historical volatility in position sizing.  Is past volatility a good measure of future volatility?  Should we use a shorter time frame for measurement?  Or longer?  Or weight the average?  Seasonality may be a poor choice to predict changes in price but what about changes in volatility?

      Is all this getting way to complicated?  Would we instead be better off just randomly choosing a number?  And one more question...when do your best returns occur?  During periods of high volatility?  Or low?  How about your worst returns?

      As always, something to explore.

      Later Trades,


      Wednesday, November 15, 2006

      Quote of the Week

      "There's a great story about a famous local trader at the Chicago Board of Trade (CBOT).  One day, he was on the floor of the CBOT and a U.S. inflation number came out that was totally unexpected.  Pure pandemonium ensued.  When all the noise died down, he walked out of the pit having made $10 million and said, "By the way, what was the number?" -- humorous story shared by Dr. John Porter in the book, Inside the House of Money
      It's official...the new trading system is in production.  A week earlier than the deadline.  Much of the work was done in R.  In fact, a few times in the project, I just don't know what I'd do without the fantastic little language.  Python and Ruby was used as well.  Along with Wealth-Lab.

      That's it from my part of the world...where I'm eagerly anticipating my first Missouri snowfall. 

      And enjoying the cool vlog, WallStrip.  It's the first stock market show I've seen where the highlighted stocks are chosen from a valid investing concept.  Who'd a thunk it?  Smart!

      Later Trades,


      Monday, November 06, 2006

      Quote of the Week

      "Implied volatility is based on historical volatility, but who cares about historicals? They're irrelevant. The point is, things can happen for the first time that aren't in your distribution so they can't be priced. If it's never happened before, how can you hedge yourself? The only way to hedge the unknown is to cut off tail risk completely." -- Jim Leitner from the interview in Inside the House of Money


      Sunday, October 29, 2006

      Quote of the Week

      "All these years I had been sustained by an illusion - happiness through victory - and now that illusion was blurred to ashes. I was no happier, no more fulfilled, for all my achievements.

      Finally I saw through the clouds. I saw that I had never learned how to enjoy life, only how to achieve. All my life I had been busy seeking happiness, not finding it." -- Dan Millman's character in the Way of the Peaceful Warrior.


      Thursday, October 19, 2006

      Quote of the Week

      "In times of change, learners inherit the Earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists." -- Eric Hoffer
      Sorry everyone for the lack of posts or response to emails.  I'm trying to meet a November 1st deadline for a new trading system.  And between that and the entire family being sick from a nasty little cold bug...well I haven't been up for much else.

      I do appreciate your patience...and hope to get back to the normal routine soon.  In fact, once I push this trading system to production...I plan on taking a nice long break from the trading system turret.  Catch a few breaths before my next run.  Ha ha!

      Until then, hop on over to the StockTickr Blog and read Jon Tait's interview.  One of the best interviews yet from StockTickr.  Jon's a smart cookie and shares some great insights into system trading and market behavior.

      Later Trades,


      Tuesday, October 03, 2006

      Quote of the Week

      "Many questions are unanswerable.  Many answers are questionable."  -- from a fortune cookie
      Wow, the above quote is so true.  I have dug a little deeper into everything I have worked on the past several years.  Calling into question my beliefs and attitudes towards the market.  I was so wrong.  It all started from a seed that Eric Crittenden planted into my head.  "Sounds like an exercise in curve-fitting", he said, in reference to one of my system ideas.

      Then a friend introduced me to the concept of focusing on what you don't like to do and casting it aside in order to free yourself for the things you do like to do.  The butterfly began to flutter...
      "It has been said something as small as the flutter of a butterfly's wing can ultimately cause a typhoon halfway around the world." - Chaos Theory
      Next, I watched the recent show on Sabermetrics where they discussed Bill James and many of the very cool things brought out in Moneyball.  Flutter, flutter.

      Finally, my recent foray into the hazards and pennywinks of developing a trading platform has brought out a very interesting focus to my trading.  What would I like in a platform?  What am I really trying to test?  How is a certain test helpful to my bottom-line?

      And all that has helped me to understand what I've been missing.  I've been focusing on the wrong thing!  So much of my time was spent on my next trade.  Kinda like in Sabermetrics where they found too much focus was on RBI's or Homeruns.  Bill James found Outs was where the focus should be. 

      And I think in trading...the focus should be on the only fixed rule that I know exists:  If you don't use margin...your losses are limited to 100%.  But, as long you don't cap your profits in any major way...your gains are infinite.  With that in mind, where should your focus be?  And what kind of formulas and tools can we use to measure this new focus?  For example, the smoothness the Sharpe Ratio tries to show becomes something of a throw-away...a tool/formula used to measure the wrong focus in your trading.  Don't understand?  Maybe this will help.  Or maybe not:

      Later Trades,


      Friday, September 22, 2006

      Quote of the Week - Kaizen

      "The most important choice you make is what you choose to make important" -- Michael Neill
      I had coffee with a friend today that brought up an interesting topic. He said, instead of thinking about all the things you like to do or would like to do and persuing them. Step back a moment and think about all the things you do not like to do...and stop doing them. A lot to chew on for yours truly.

      First off, because it is very hard for me to think about what I don't like to do. Perhaps because I've spent so much time and effort in determining what I like to do? Or maybe I don't like to admit there are things I don't like to do?

      Reminds me of Kaizen. Eliminating activities that add cost and do not add value in an effort to continuously improve. We could all use that, right?

      So, here I am thinking about what I don't like about investing/trading.
      1) I don't like nothingness. I don't mind least something is happening. And of course, I love when I'm reaching new equity highs. But, I absolutely abhor nothingness. That period of time when your investments just sit there and do nothing. I don't like that. Which is a bad thing...since most of an investor's time is spent in nothingness.

      2) I don't like gut feel investments. I want a precise method to follow that lets me know exactly when to buy and when to sell. Thus, the reason for developing trading systems.

      3) I don't enjoy buying and selling stocks. I enjoy researching trading ideas and building systems around those ideas. But, the actual buying and selling of stocks is not fun for me. Would enjoy things much better if someone else traded my systems, so to speak.
      That's about it as far as my dislikes. Not too bad. One day I need to write what I like about investing/trading.

      Trading Platform Update:
      I've made lots of progress on the trading platform front. But, so much still to go. I'm spending equal time in Python and Ruby in this quest. My major roadblock right now is obtaining the most efficient way to process historical stock data against portfolio data.

      Most trading platforms process a symbol at a time. But, doing that prevents you from ranking all stocks triggered for a given day along with the currently held stocks and choosing the top 10, 20, etc. Because you'd have to read all symbols and all dates in order to get at a certain date for all symbols.

      So, I'm trying date processing instead. Spin through all the symbols for a given date instead of all dates for a given symbol. Doing this would enable me to rank, adjust, etc. prior to the next day of trade. But, going this route scares me due to performance issues. Maybe it won't be so bad. We will see.

      If anyone has ideas on this subject, please send my way. The main goal of the project is to avoid memory intensive methods. The reason? The trading systems I work with consists of all stocks in the US Markets going back 20 years or so. It crashes Wealth-Lab due to its memory method of position sizing despite 2GB of memory. I could buy more memory, but that would be too easy. :-)

      Later Trades,


      Friday, September 08, 2006

      Quote of the Week - Dilbert?

      "I'm a great student of successful people, and usually at some point in their careers, they've had to take a huge risk. That used to cause a dull ache in my stomach. I still get it, but now I ignore it." -- Scott Adams, creator of Dilbert

      Fall Movies

      Wow, there is nothing like Fall movie lineups to get you going.  And this season looks to be a good one.  Here's just a few of the movies that caught my eye and will likely see...

      We Are Marshall & Facing the Giants - Nothing like football movies in the Fall.

      A Guide to Recognizing Your Saints - Returning home again?

      The Departed - Good Cop?  Bad Cop?

      Fearless - Jet Li...Martial Arts...need I say more?

      Enjoy the weekend!


      Wednesday, September 06, 2006

      Quote of the Week - Mindsets

      "Often when you mention risk, what people think of is the downside. Danger. That's not the entrepreneurial mind-set," she said. "The entrepreneurial mind-set is that risk is the heightened probability that there is a big range of possible outcomes." -- Heidi Roizen

      The above quote is from's recent series on What it takes to be rich. I love the story describing growth mindsets versus fixed mindsets.
      Dweck, the psychologist who studies growth mind-sets, created an experiment to demonstrate how persistence and the pursuit of knowledge leads to success. She posed a series of trivia questions to a group of people with fixed mind-sets and another with growth mind-sets.

      After each answer, one and a half seconds passed before the participants were told whether they were right or wrong, and, if they were wrong, another one and a half seconds lapsed before they were given the correct response. Their brains were monitored with electrodes the entire time.

      Dweck found that the people with fixed mind-sets cared a lot about whether they were right or wrong but not at all about what the right answer was. The growth-mind-set participants stayed interested until the correct answer was given, showing an interest in learning new information rather than in simply validating their intelligence.
      more from Carol Dweck...
      People with fixed mind-sets believe that they were born with a certain amount of intelligence, and they strive to convince the world of their brilliance so that no one finds out they're not actually geniuses.

      Growth-mind-set people believe that intelligence, knowledge and skill need to be "cultivated" by trial and error. Failing at something, they believe, is the best way to ensure they'll succeed at it the next time.
      This growth mindset versus fixed mindset sounds so interesting...I just might have to go out and read her new book:

      Follow along with the's series here...
      Lesson 1: Make your own luck
      Lesson 1, Corollary 1: Building 'social capital' often pays off in the end.
      Lesson 2: Failing at something is the best way to ensure success at it the next time.
      Lesson 2, Corollary 1: Successful people are always on the look out for new experiences that they can later build on.
      Lesson 2, Corollary 2: If you see an opportunity, take it. But that doesn't mean betting the ranch.

      Later Trades,


      Tuesday, August 29, 2006

      Quote of the Week - I Love Ruby!

      "It is not the responsibility of the language to force good looking code, but the language should make good looking code possible." -- Yukihiro Matsumoto
      I just discovered the power of Ruby!!!

      More later,


      Tuesday, August 22, 2006

      Quote of the Week - Programming

      "And don't write longer, more obtuse code because you think it's faster. Remember, hardware gets faster. MUCH faster, every year. But code has to be maintained by programmers, and there's a shortage of good programmers out there. So, if I write a program that's incredibly maintainable and extensible and it's a bit too slow, next year I'm going have a huge hit on my hands. And the year after that, and the year after that.

      If you write code with more code that's fast now, you're going to have a hit on your hands. And next year, you're going to have a giant mess to maintain, and it's going to slow you down adding features and fixing bugs, and someone's going to come along and eat your lunch." -- Wil Shipley

      Great quote!  Read more on this topic here.


      Development 0.1

      "Be careful about using the following code -- I've only proven that it works, I haven't tested it." -- Donald Knuth
      I have finally started my dynamic allocation of equity project.  This is something I've stewed about for several weeks...okay...maybe months.  But, after meeting with Jon for lunch this weekend...I finally got the motivation back to begin work on the project.  Thanks Jon!

      And seeing as how I hardly ever write anything of significance on this blog...I figure I'd start documenting some of the steps I'm taking to get this project on the road.

      First thing was to find a better coding environment than what I was using.  I have been using the PythonWin IDE for my trials and tribulations.  I needed more oomph.  Hopped over to Vim and have hunted and pecked my way around a bit.  No flow joe yet.

      Before moving on...does anybody know of a windows or even linux distro of the EVE$EDITOR?  Somebody?  Anybody?  Hello?

      Just a week ago, I found out about the new Pydev extension to Eclipse.  Pretty nice.  It's still not perfect...but much closer to what I'm looking for.  So, now that I've found an IDE that allows me to play in the sandbox a bit...on to the database choice.

      I downloaded pytables due to their "designed to efficiently and easily cope with extremely large amounts of data" claim to fame.  And then did nothing with it.  It's not the relational type of storage I'm used maybe that's why.  Thought maybe a viewer would help, so downloaded the vitables viewer.  It was nice...but still did nothing with it.

      Okay, maybe I'm making this too hard.  One of the python programmers I know mentioned Sqlite.  Downloaded it.  Found the python extension for it here.  Explored documentation for working with it here and here.  Now, I'm getting somewhere.  Wrote a few python modules to test create, insert, drop, and fetch.  Here they are:

      Create Table in Python/Sqlite:
      ******Begin of Code***********************
      from pysqlite2 import dbapi2 as sqlite

      conn = sqlite.connect("TaylorTree")
      cursor = conn.cursor()

      SQL = """
          create table MarketDaily
            Symbol    text,
            Bar       SQL_DATE,
            Open      float,
            High      float,
            Low       float,
            Close     float,
            Volume    float,
            AdjClose  float,
            primary key (Symbol, Bar)
      ******End of Code***********************

      Insert into Table:
      ******Begin of Code***********************
      from pysqlite2 import dbapi2 as sqlite

      conn = sqlite.connect("TaylorTree")
      cursor = conn.cursor()

      SQL = """
          insert into MarketDaily
          (Symbol, Bar, Open, High, Low, Close, Volume, AdjClose)

      ******End of Code***********************

      Fetch from Table:
      ******Begin of Code***********************
      from pysqlite2 import dbapi2 as sqlite

      conn = sqlite.connect("TaylorTree")
      cursor = conn.cursor()

      SQL = "select * from MarketDaily"
      # Retrieve all rows as a sequence and print that sequence:
      print cursor.fetchall()

      ******End of Code***********************

      Drop Table:
      ******Begin of Code***********************
      from pysqlite2 import dbapi2 as sqlite

      conn = sqlite.connect("TaylorTree")
      cursor = conn.cursor()

      SQL = "drop table MarketDaily"

      ******End of Code***********************

      Not too bad.  Not too hard.  But, then I figured I'd make a module that would handle all this stuff for me.  Some hard work began...all because I had no idea how to use symbolics in Python/SQL.  Finally discovered the needle in a haystack...'%s'.  Aha!

      ******Begin of Code***********************
      from pysqlite2 import dbapi2 as sqlite
      conn = sqlite.connect("TaylorTree")
      cursor = conn.cursor()

      def UpdatePrice(sym, b, o, h, l, c, v, ac):
          SQL = """
                insert into MarketDaily
                (Symbol, Bar, Open, High, Low, Close, Volume, AdjClose)
                """ % (sym, b, o, h, l, c, v, ac)
      ******End of Code***********************
      After spending a lot of time getting all that going...I then turn back to pytables.  Maybe I need to dig deeper there.  Found some very good documentation here.  But, I'm still sitting here...nothing.  Hey, someone give me some motivation on working with this bad boy!  Anybody have any experience to share in regard to pytables?  If so, bring it on!  I need some mojo!

      And that's where I am now.  Oh...and of course, will begin working on spinning through TC2005's databank and load historics into Sqlite.  How do I do that?  That involves working with COM objects and Python makes it very easy for you.  In fact...I'm amazed at how complicated it is to call a COM object from Microsoft's own languages like C#.  In python...all you have to do in order to get to the TC2005 COM object is...
      ******Begin of Code********
      import win32com.client
      ******End of Code**********
      2 lines.  Now, I'm sure there is a much easier way to call a COM Object in C# that what I was trying to do.  If anyone out there knows how...please leave a comment.  I'm really interested to see how many lines it takes to connect.

      One last thing...if C# is your thing...check out Microsoft's free version of Visual Studio, C#, and even SQL Server via the Express Editions.  C# not your cup of tea?  There is Visual Basic, Visual C++, and even Visual J++.

      And that's it from here...where I'm hoping to catch up on some much needed sleep.

      Later Trades,


      Sunday, August 13, 2006

      Quote and Thread of the Week

      "One of the best attributes I know a trader to have is humility. The best traders I know admit to knowing very little about what the market will do or don't pretend to have any kind of secret method or style or edge that others don't have. They just go in to work everyday like a brick layer. Their goal is to lay bricks. One at a time. And hopefully at the end of their life they have built a solid foundation. That's all a trader can hope for." -- Maverick74
      Found the great quote above perusing EliteTrader this weekend.  The thread is titled, Writing Options for a Living, read here.  You'll have to be patient because a lot of time is spent with posts from people still believing in the Easter Bunny.  But, there are a few gems to be found...especially from Maverick74, riskarb, and a few others.

      Later Trades,


      Monday, August 07, 2006

      Quote of the Week

      " Becoming wealthy is like playing Monopoly.. the person who can accumulate the most assets wins the game."
      -- Noel Whittaker


      Sunday, July 30, 2006

      Thread of the Week - Birth of a Turtle

      Came across a great thread this weekend regarding Curtis Faith and his Turtle background.  Read here.  I especially enjoyed the story of his initial programming experience converting trading systems.  What a great first job.  And of course, always hungry for insights and traits into what makes a successful trader.  Here's Mr. Faith's take:

      The ones who were successful had more emotional control. The ones who weren't successful were either too intellectually insecure and unable to commit to a strategy, too greedy, too emotionally invested in their financial success, too affected by the large swings in equity, or too averse to the risks required to trade well (probably due to a lack of confidence in themselves). One of the things that distinguished the good Turtles from the ones that were completely unsuccessful is their personalities. The traders with a more intellectual and systematic approach to life were much more successful than the emotional traders who really wanted to make a lot of money.
      And finally, one of the most important insights Curtis makes:

      ...all successful people owe their success to the help of others. They therefore have an obligation and usually a desire to pass on the craft, to teach and help others.
      I am thankful that such a thing is true.  I owe many thanks to the people that have helped my programming and trading experience grow in the right direction.  In a sense, we are all like those baby turtles Mr. Dennis refers to.  Just trying to make it out to sea and swim with the big dogs.  And avoid the many perils from beach to sea.

      Later Trades,


      Saturday, July 29, 2006

      Quote of the Week

      "There is no doubt in my mind that systems and styles which offer a rougher ride will hold up more over the long run because not as many traders and certainly almost no institutional money wants the ride.

      You will make more money if you can take the pain. Unfortunately, you will make little or none if you think you can but it ends up that you can't."
      - Curtis Faith -


      Monday, July 24, 2006

      Interview of Programming Greats!

      A really cool interview of several of the great programmers of our time: Linus Torvalds, Guido Van Rossum, James Gosling, etc. Read here.

      They answer questions in regard to what they feel is the next big thing, what new technology they feel is worth learning, what makes programmers productive, etc. Really great interview. Check it out.


      Saturday, July 22, 2006

      Thread of the Week

      A really great thread over at the Trading Blox forum.  Read here.

      Best part was the comments by Curtis Faith in regard to "the characteristics of markets over time."  Curtis broke the markets into three classes:
      1)  Fundamental Driven Markets - cleanest trends and easiest to trade;

      2)  Speculator Driven Markets - perception driven and harder to trade;

      3)  Aggregated Derivative Markets - averaging out effect dilutes momentum.

      Plus, I always enjoy it when Curtis shares his Turtles experience.  His coffee story reminds me of a few trades from my Melba Toast story

      Also, pay attention to Barli's mention of optimization and the effect lack of cash has on your results.  This is a very hard lesson to learn.  Most backtesting platforms will drop trades due to lack of cash.  Thus, you only see a sample size of the actual results.  There are a few solutions to this problem...but that's for another time.

      Later Trades,


      Monday, July 17, 2006

      Quote of the Week

      "Every now and then go away, even briefly, have a little relaxation, for when you come back to your work your judgement will be surer; since to remain constantly at work will cause you to lose power."  --  Leonardo da Vinci
      Well, I had a little break.  And during that break I moved my family to Missouri!  Yes, we are now in Missouri.  Things are going good.  Still have so much unpacking to do.  But, was able to mow the yard (grass is different here than Texas) and find my grilling supplies for a good steak dinner with a corona or two.

      The break did me good.  No computer, time spent with the family, and change.  Plenty of change.  Change does the mind good.  Breaks you out of your comfort zone.  And that's a good thing...even though it doesn't always feel like it when undergoing the change.  Here's more on breaking out of your comfort zone from Dr. Brett.

      And that's the update for yours truly.  Oh, and I start my new job this week.  Very excited.

      Have a great week!


      Wednesday, July 05, 2006

      Quote of the Week

      "If you've been pounding nails with your forehead for years, it may feel strange the first time somebody hands you a hammer. But that doesn't mean that you should strap the hammer to a headband just to give your skull that old familiar jolt." -- Wayne Throop
      This quote rings so true.  :)

      Happy 4th everybody!


      Thursday, June 29, 2006

      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,


      Wednesday, June 28, 2006

      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,


      Monday, June 19, 2006

      Quote of the Week

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


      Tuesday, June 06, 2006

      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,


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      Sunday, June 04, 2006

      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! :)

      Dad & Daughter Drawing

      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.


      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


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