Being A Genius No Guarantee Of Good Performance In The Stock Market

from the turning-brilliance-into-wealth dept

Thu, Mar 22nd 2007 6:47pm — Joseph Weisenthal

There's been a lot of interest lately in ways to automate the process of analyzing and predicting the behavior of stocks in the stock market. Amidst an ongoing explosion in the quantity of information, there's good reason to be interested in any tools that help investors separate signal from noise and identify patterns. The latest company to get involved in this space is one headed up by famed inventor and technologist Ray Kurzweil, who many people consider to be a genius. The company promises to employ so-called quant techniques, which involve advanced mathematics, to identify patterns in the market and help investors pick stocks. It's not denigrating Kurzweil at all to suggest that people might want to tread cautiously on this one. Being a genius doesn't necessarily equate with being a great stock picker. Long Term Capital Management, which suffered the worst hedge fund implosion of all time, was headed by multiple Nobel Prize winners. Because of the firms' rather impressive pedigree, many simply assumed that the firm had cracked the code of the market and could do no wrong. Ultimately, Kurzweil's company will only be measured on its ability to turn up winning investments, not on his name or his past feats.

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Nick Burns, 22 Mar 2007 @ 7:19pm

pi
I already know the magic code to predict stocks in the market. It's the same code that is used to unlock the code of the Torah. Haven't you seen Pi?!?!

By the way, that guy was a genius too, until he took a 1/4" drill bit to his right temple to cure a migraine.

FIRST!
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RandomThoughts, 22 Mar 2007 @ 7:29pm

"Ultimately, Kurzweil's company will only be measured on its ability to turn up winning investments, not on his name or his past feats."

I don't know, seems like the name works well for Steve Jobs.
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fishbane, 22 Mar 2007 @ 8:00pm

Ultimately, the market balances any quantitative advancement. The reason is that is a method is successful, there is very good reason to figure it out. Eventually, everyone has the tool.

Then, it is back to inside knowledge, "instinct", and institutional advantage.
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Mvaughn, 22 Mar 2007 @ 8:54pm

I don't see how any number of supercomputers can game the market in the way a human can; we form world views based on non-quantitative information, take technical data and human data from past performance of the stock and the companies management, integrate any personal insight we may have as humans judging the character of other humans if we know more about the management, bring in some knowledge about emerging technology or world events, and then bring the whole thing together to help narrow the field to certain key industries or markets, and to further weed out the stocks of companies that dont fit well in this personal, unique world view. At this point, with a list of stocks in hand, perhaps letting a supercomputer spin its wheels to figure out when one might perform best would be okay, but the rest of all of that? Not this decade.. probably not this quarter-century, either. Maybe the next though.
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Jo Mamma, 22 Mar 2007 @ 11:55pm

old news
Eh, whatever.

As Joe implied in the blog post above this has been done before, many times and for many decades... and these types of things have horrible track records. You're probably better off putting your money in a savings account than investing in the "new, cutting edge, whateverthefuck" from a genius.

Fact is you don't need to be a genius to make money. And geniuses typically do less well than the rest of us, because they think they can outsmart the system. You don't need brains, you need discipline... period. You can look for all these patterns and trends and whatever, but they all add up to very little.

Unless you employ billions of dollars and have a high tolerance for risk, exploiting market inefficiencies is a bad idea. Invest for the long term, look at ROE above all else and don't be an overly emotional idiot. Oh, and if you're looking for a bit of high risk, high return, look at uranium investment options.
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anon, 23 Mar 2007 @ 9:26am

Algorithms vs. Humans
"Amidst an ongoing explosion in the quantity of information"

Quantity does not mean quality. Algorithms are great for processing numbers and you can quantify certain abstract ideas, but I think it's silly to believe that the computer / algorithms are going to be making the decisions. There are still going to be humans taking abstract ideas, such as "CEO's leadership skills" and quantifying it as a 7, to be processed in the algorithm. There are unforseen events, such as the death of a loved one, that could destroy the algorithm unless it is constantly updated with new data. What are their sources for data?
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Mr Textbooks, 26 Mar 2007 @ 7:03am

It'll be awhile before he's measure quantitatively
I'm sure at some point his results will speak for themselves, but the nice thing about a reputation is he doesn't need any results to get people on board to start. If it's a turd I guess that's his reputation on the line, it'll all work itself out.
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