gC2

I had forgotten that I did that that Stock Comparison a couple of years ago. However, now that I look at it again, I see that gSC is NOT what I want. gSC multiplies stock returns together. If their product is positive, the returns have the same sign ... and the two stocks move up or down together. gSC then adds all those products and fiddles scales the resulting number so it lies between -1 and +1. That means that LARGE returns have a greater product (hence a greater weight) than small returns. Is that what I want? NO! What I want is to be able to say things like: "Over the past 5 years, the weekly prices of Chevron (CVX) and Exxon-Mobil (XOM) have moved together -- 79% of the time." Now that calculation don't require no fancy fiddling scaling. We jest sorta count the number of times the returns have the same sign, eh? It's like -- a poor man's correlation. Then we get things like this: Am I happy? P.S. Did I mention that gC2 stands for Comparison #2. --------------------------------------------- If'n y'all want to play this game, here's the spreadsheet: http://www.gummy-stuff.org/Excel/gC2.xls I might also mention that, being old lazy efficient, I generate new spreadsheets by modifying old spreadsheets. Every time I do this, the size of the spreadsheet grows ... and grows. This one is obscene, at (almost) 6 MB! That used to bother me. It don't, no more. Once upon a time, somebuddy went through all my spreadsheets and created new ones -- reducing the size of each significantly. That was when there were a couple of dozen. Now there are over 500 of 'em !! --------------------------------------------- One thing that's interesting is persistence. Suppose you discover some neat relationship between a pair of stocks over the last 5 years. Will that relationship persist over the next year? Here are charts for 5-years and the subsequent year: --------------------------------------------- You decide.

 

gSC

While flying back from our vacation, I was thinking about Pearson Correlation between pairs of stocks. I never did like it much. There must be a better way, eh? What I'd like to know is: "If the stock X price goes up (or down), will stock Y go up (or down)?" The usual measure of correlation don't do it. Indeed, check out the following $1K investments: See? Both stocks tend to move up/down together, eh? So what "correlation" do you expect? In fact, it's -1 (or, as some might say, -100% correlation). That's because the usual correlation does not measure whether the stocks move up or down together. It measures whether they move up or down relative to their mean return. Do I care about their relationship to their mean return? NO! Okay, so I whip out a spreadsheet and consider a different kind of "comparison" between a pair of stocks -- one that'll measure whether their returns tend to be positive or negative together. I'd also like to have this "fancy correlation" represented by a number between -1 and +1. So I start thinking. Then I realize that it seems so familiar. Then I realize that I've done this before, here. Then I realize that my senility is showing ... again! Then I realize that I definitely need more sleep. Must be the time difference and jet lag and all that cruise food ... P.S. Note that, for the chart above, gSC = 79%

 

Greece, eh?

On our 25th wedding anniversary, we toured Greece. Now, in the year of our 50th anniversary, we'll cruise Greece. Tonight (since the volcanic ash has parted) we fly to Venice. Our cruise May the markets smile upon us all.

 

Returns vs Volatility

I read some article that mentioned: "In questionnaires, investors tended to have higher return expectations when they forecast volatility as being relatively low". What! Are investors schtoopid or somethin' ? Everybuddy knows that one should associate higher returns with higher volatility. Regardless of what investors "think", what's the data show? Here's a gaggle of DOW stocks: 5-year Return vs the Volatility of monthly returns: See? Smaller returns are associated with higher volatility. Are investors schmart or what !! Mebbe investors are influenced by what happened earlier (?) Here's that chart using data 5 years earlier: P.S. I got the data from the spreadsheet described here -- with some mods to get 5-year returns rather than annualized returns. P.P.S. Shhh ... don't tell nobuddy. Under one of the buttons it says d for daily returns. Y'all can change that to m for monthly returns.

 

Wolfram revisited

One year ago I wrote about Wolfram Alpha. I recently checked it out -- again. Mamma mia! Try IBM Apple. WOW!! I even larn things I didn't hardly know (or believe): Click!

 

'nough said

Them Nordic countries do good, eh? This is sad ... Click to enlarge. ------------------------------------- Prosperity Index 2009 List Okay, so why do the Nordic countries have this: >> Almost no poverty or starvation or ghettos. >> Virtually no homelessness problem. >> Very little crime. >> Equal opportunity to education & health care     (regardless of the wallets). ---------------------------------------- Check out the Gini Index (global median = 0.39) (which measures disparity between rich & poor): Click to enlarge.

 

To be ... or not

There's this volcanic ash thing that threatens our flight to Venice this Friday. We keep checking the extent of the ash cloud. Will it reach Venice? Will we be on that cruise? Ash gets sucked in the jets, melts at 1100 degrees, clogs the jet engine ... then stalls? Apparently, a plane can drop below the ash and restart the engines. They've relaxed the conditions for flying in ash. Maybe we're good to go, eh? We went to Greece on our 25th wedding anniversary. This'll be our 50th anniversary. That pain in the ash wouldn't dare interrupt. Would it?

 

Mother Goose

Remember when I mentioned that the eggs of our Mother Goose were sprayed with oil -- so they wouldn't hatch? Well, after three weeks of sitting on the eggs, she gave up. For several days she and Father Goose have been in the neighbourhood, just wandering about. But they've obviously been busy. This morning, she straightened out her nest ... then she laid three more eggs! Whooeee!

 

Opens UP

Although investing by the charts is fun, I reckon there's an element of investor psychology involved. That is, one should be able to gauge investor sentiment (concerning some stock) by gazing intently at one chart or another. My current thinking is that, should a stock open UP (from last day's Close), it says something about how investors feel about that stock today. Indeed, I reckon that the sentiment that generated the increase will continue -- for a while, at least. To test that reckoning, I look at the 30 DOW stocks and identify those days where the stock opens UP. Then I look at the subsequent High. What happens? Do it continue UP (for a while) or DOWN? For a DOW stock, when it opened UP, it continued UP by about 1.5% (on average, over the past couple of years). How about if it opened UP by 1% or 2%. How High did it go? 'course, it'll depend upon the stock, eh? Here's McDonald's: ** How about this guy? Note: Opening UP by 0.0% just means the Open is larger than the previous Close. Anyway, if'n y'all would like to play this game. I've modified the spreadsheet described here to include that kind o' stuff. ** When we were in Japan, they called it Maca-Donarudo.

 

Open up or down

Okay, so I'm hooked on questions like: If my stock closes DOWN, will it go UP tomorrow?" and If my stock closes UP, will it go DOWN tomorrow?" and, of course, by how much and how often? etc. Motivated by dramatic drops in my favourite stock(s), I whip out a spreadsheet: Click to enlarge.

 

abiotic theory

I was watching TV and somebody, commenting on the oil spill in the Gulf of Mexico, remarked that oil was created from dinosaurs. Huh? The "accepted" theory is that oil was generated from plants (and animals) under great pressure and heat -- plants like algae and plankton. It is, as they say, a "fossil fuel". It's a biomass, an organic compost pile. It's composed of hydrocarbons ... and they're organic in nature. I always found this difficult to believe. I tried to imagine the distribution of plants (and animals) a jillion years ago and the current distribution of known oil reserves. I tried to imagine the geological history of these regions and the abundance of plant life ... and the temperature and pressure necessary to turn a T-Rex into a barrel of oil. It ain't easy to imagine. Maybe I ain't got much imagination. Years ago I read of another theory: the abiotic origin of oil, championed by Humboldt in the 19th century. It posits the transformation of hydrogen and carbon monoxide (derived from things such as methane) to liquid fuel. The process is initiated at great depths in the Earth's mantle (40-90 miles deep) and the resultant oil percolates to the Earth's crust. The father of modern abiotic theory was a Russian, Kudryavtsev. He noted that oil has never been made in the lab from plant material. Today (I understand), Russia adopts the abiotic theory and uses it to find oil. Maybe that's why it's the largest producer after Saudi-Arabia. (Or maybe it's because it's the largest country in the world, eh?) Recently, abiotic oil has been generated in the laboratory. In fact, abiotic oil has been generated from methane. No biological origin? But what about methane? Does it have a biological origin? Not necessarily, since it's been found on other planets (and moons) in the solar system. (Have they got plant or animal life?) A couple of years ago it was discovered that deep sea hydrothermal vents contained hydrogen-rich fluids. So ... what about Peak Oil? One writer asks: "Just how many dinos and prehistoric ferns does it take to make a barrel of oil?" ------------------------------------- Did I mention that, although the Gulf spill is leaking 5000 barrels / day, there was the Ixtoc spill in the Gulf, in 1979. It leaked over 3 million barrels over a period of about a year. There was also a spill in the Persian Gulf (as a result of the Iraqi invasion of Kuwait) which leaked twice that amount, in 1990.

 

the DOW dump

On May 6, the DOW dumped almost 1000 points. That's about 10% of its value. That's quite remarkable, eh? So I've been reading that: [1] Somebody typed B (Billion) instead of M (Million). [2] Computers were "in charge" and goofed. [3] Software measured investor sentiment and reacted.       ... and MSNBC was showing video of Greek riots! [4] When traders started selling, there were few buyers.       ... and market orders kept going to low bidders. [5] Proctor&Gamble (PG) dragged down the DOW. [6] Cancelled trades weren't being recorded. [7] Circuit breakers on the NYSE kicked in.       ... so HUGE trading volumes went to other exchanges. [8] Was it manipulation by someone who made a fortune?       (That's from dilbert.) [9] Cyber terrorism. [10] Insert your own explanation. The DOW is proportional to the SUM of 30 stocks prices. How, then, did each DOW component react? What was their drop, from High to Low (on May 6)? They was like so: Figure 1 See? PG dropped the mostest! But does it constitute a large fraction of the Index? Here's the (current) weighting of the DOW 30. Figure 2 See? IBM (with the largest stock price) has the largest weight. And PG? A paltry 4.4%. If'n we take the 30 percentage drops (from Figure 1) and weight them (according to Figure 2), we'd get a 12% drop in the DOW (from High to Low). So ... what's my explanation for the DOW dump? GREMLINS Either that ... or mebbe:

 

Debt is bad (?)

This Debt as a percentage of GDP always intrigues me. Is having a high percentage bad? Check this out. Are the "top" countries badly managed (economically)? Are they in trouble (financially)? Click for an enlargement. Is Japan in big trouble? (I doubt it.) Is Italy in trouble? (Probably.) Is Greece in trouble? (Definitely!) Do these numbers mean anything? Maybe it depends upon who owns your debt, eh? China ($877B) and Japan ($768B) got lots of U.S. debt. I understand that much of Canada's debt is owned by pension funds, insurance companies, banks ... so it's owned by Canadians. How much does China and Japan have? I dunno.

 

Take a gander at our geese

We got us a gaggle of Canada Geese nesting on the shore of Lake Ontario. Alas, some feel they're a pest and the local Wildlife Service runs around spraying oil on the eggs -- so they won't hatch. A friend has a blog where he shoots swans and geese with a camera! His geese seem smart enough to evade the oil. Why can't ours?

 

WWII

Here's a neat sight: British, American, French (and others) joining the Russians on May Day to celebrate their common victory in WWII. The Soviet Union suffered the most losses of any country with more than 7.5 million soldiers killed, 5 million wounded and millions of civilian deaths. Most Russians (me too!) believe they could/would have "won" the war without allied help. After all, they were winning the war on the Eastern Front ... and over 70% of German troops were engaged on that front on D-Day I'm waiting for Hollywood to recognize that.

 

Cuba, eh?

We're planning a trip to Cuba, next year (to celebrate a wedding). Aah, but starting May 1, 2010, Cuba requires proof of medical insurance. (I reckon that's to avoid having tourists arriving to take advantage of Cuba's free medical coverage.) Alas, the Cuban authorities (so far) haven't clarified what type of coverage is required or what (foreign) companies are "approved". Cuba does, however, have kiosks in Havana airport where (apparently) you can buy insurance for (about?) $3 /day. Since Canadians are Cuba's most popular tourist, I'm expecting a personal clarification from Fidel.