Future = Past

I often says that "The future is a replica of the past". That's a joke, folks. However, I got an e-mail that reminded me that: "Past performance is no indication of the future return." That reminded me of something I did in the last century, following the "hottest" mutual fund: My advice?

 

Richer than you think

I never thought we were rich. Indeed, I figured we were just "comfortable". Then I ran across a site that compared my income to "the world". Mamma mia! We is richer than we thought! Alas, I'm not sure the indicator works any more. I pretended to be Bill Gates. I think I broke the gadget ...

 

Coal to ashes

My coal stocks are tanking!! Down 24% in a couple of weeks! 'course, after a dramatic 400% increase over the past year, what can one expect, eh? So when will it end ... for (say) WTN? At times like this I turn to a patented and infallible guide. I see that, starting Aug 31/05, WTN behaved much as it has over the past 25 days. See what happened to a $1K investment? Then what happened next? See? Mamma mia! So what'd happen had I used my magic technique? Better, but no cigar.

 

Open up (revisited)

Okay, so I'm eager to try that ritual where I wait until my stock opens UP by (say) 1%. Then I BUY at the Open (I can do that 'cause my finger is poised over the Buy button.) I stick in a SELL order at 1% higher than the Open. I also stick in a SELL order at 1% below the Open ... just in case the stock don't rise to the occasion. Then I pray. So, in order to convince meself that I got me a good ritual, I try it on historical data since (as everybuddy knows) the future is a replica of the past. Indeed, I try it on one of my favourite coal stocks: 'course, this is fiction ... but great fun, eh? P.S. I include a $10 trading fee, else the 2-year gain would be 236%. I might mention that, sometimes, it ain't that good: and sometimes it's even worser: Note: Wanna see what would have happened with DOW stocks? Click! I might also mention that I ignore the case where the stock drops 1%, then I SELL, then it rises to the occasion. But, as a world famous writer of Science Fiction, I know that I can make anything happen (in my imagination). P.S. I've put in an offer on Gates' mansion.

 

Open up => Buy

I seem to be stuck on this Buy/Sell ritual that looks at the foreign markets (before local markets open) and the DOW futures, then at the opening price of a stock, then I decide whether to Buy or Sell. Though I'm sure I've done this a jillion times, I did it again this morning. For example, this is what I find: Okay, so I'll now try the following: > If the price opens UP by x%, I'll buy some at the Open and Sell it ** later in the day. > If the price opens DOWN by y%, I'll Sell some at the Open and Buy it back, later in the day. > In both cases ... Note: It's not only that the percentage of times that the movement continues (from the Open) is high, it's the fact that it happens quite often! Here's another (more familiar) guy: P.S. I got me a spreadsheet, but it ain't ready for public consumption ... yet. ** I forgot to mention that I'd never sell more than 50% of my holdings ... just in case I goofed (which is often). When I sell 50% and the stock goes UP, I tell my wife: "I'm happy. I kept 50%" When it goes down, I say: "I'm happy. I sold 50%" P.P.S. Okay, now I got me a real, live spreadsheet here. Soon, I'm thinking of buying Bill Gates' mansion ...

 

Shanghai

Shanghai is hosting Expo 2010 ... to the tune of $58B! There are complaints of long lines: waiting for hours to get into some pavilion. Shanghai is the largest city on the planet: population 20M. The last (and only) Expo we've been to was Expo 67. We often had to wait for hours. Montreal had a population of 1.2 M in 1967. Canada's population in 1967? About 20M. ----------------------- P.S. One of the countries that didn't have an exhibit at Expo 67? China!!

 

Caveat emptor

I'm selling stock in my company: Gummy Stuff Inc. I provide information on the company, like this. However, I don't tell you that I intend to short the stock -- betting that it'll tank. Am I doing something immoral / unethical? Perhaps. Am I doing something illegal? I doubt it.

 

old age and obfuscational dialogue

When I was younger, I got angry confused mildly irritated* when I read statements like: 2/3 of stock returns lie within one standard deviation of the mean and stock returns have a normal distribution. Now, much older and (perhaps) wiser, they don't bother me any more. However, it's still disturbing to note that financial gurus like to change the meaning of words (or attach misleading meanings). For example, the word risk which the Common Joe would understand to mean: risk n The possibility of suffering harm or loss. In financial circles, this guy was assumed to mean the Standard Deviation of a set of stock returns. Now, to calculate the Standard Deviation of set of n (historical) returns, Rj, the magic formula is: Standard Deviation = SquareRoot[(1/n) { (R1-M)2+(R2-M)2+...+(Rn-M)2} ] where M is the Mean of the returns. As anybuddy can plainly see, this animal is a measure of the deviation of returns from their Mean. So why would anyone call it the risk associated with this stock? If my returns were 10% larger than yours, we'd have the same risk. That's because the SD doesn't change when you add a constant to the set of numbers. If we both invested in a guaranteed returns certificate, but my guaranteed returns were twice yours, my investment would be twice as risky. That's because the SD doubles when you double all the numbers. Okay, so many (recognizing that "risk" is perhaps a misnomer), began to call it the uncertainty associated with stock returns. Huh? Where's the uncertainty here? (The first set of returns has higher SD.) Why can't we just call SD the Root-Mean-Squared (RMS) deviation of returns from their Mean? ** Anyway, we now have a plethora of risk measures, like downside risk, value at risk, drawdown risk, omega ... ad nauseam. *In the last century, there was this discussion on obfuscational dialogue. ** We (perhaps unknowingly) use RMS all the time. For example, the RMS voltage that comes rushing from out electrical outlets is 120 volts RMS. The actual voltage ranges between +/- 170 volts. ------------------------------ As evidence that I'm gettin' old, I ran across the quiz I have on my web site ... and couldn't answer any of the questions ('cept 5.2) ------------------------------ Once upon a time I thought I'd like to define the sex appeal of a stock as its Standard Deviation. That way, my investing in very volatile stocks (as I do) would make me feel warm all over.

 

Illegal aliens

Some interesting numbers, questions, problems one finds while googling ... pertaining to the U.S.A. [1] According to the World Bank, 53% of Mexico's population of 104 million residents live in poverty. [2] Unemployment in Mexico: 40%. [3] Unemployment benefits in Mexico: 0. [4] Annual monies paid by illegal workers (and their employers) to U.S. Social Secuirty coffers: $7B. [5] Number of illegal workers who will collect Social Security benefits: 0. [6] In 1999, under President Bill Clinton, the US government collected $3.69 million in fines from 890 companies for employing undocumented workers. [7] In 2004, the Bush Administration levied NO fines for US companies employing undocumented workers. [8] Is the presence of illegal workers profitable to companies and government? Yes. [9] Are members of congress eager to curry favour with Hispanics? Yes. [10] Will the U.S. federal government take extraordinary measures to eliminate illegal workers? No. Comment by Pastor Robin Hoover (of Humane Borders): The U.S. has two signs at its Southern border Help Wanted: Inquire Within and Do Not Trespass ---------------------------------- On the other hand, education, health care and incarceration of illegal aliensthe costs Californians $10.5 billion per year. ---------------------------------- I just read the new/controversial Arizona law: sb1070s.pdf

 

Normalized Stock Prices

I got e-mail asking about normalized stock prices. Alas, I never heard of such an animal. ** So I google and find a jillion definitions of "normalized" (when it comes to stock prices). However, it was intended to identify pairs of stocks whose prices tend to move together. Then, if they diverge (A goes UP while B goes DOWN), we expect them to converge to historical relationships ... so we sell A and buy B. So then I find this reference where, by normalized, they mean: (Price - Mean) / (Standard Deviation) So we (presumably) Collect a bunch of (historical) prices for stocks A and B. Calculate the Mean and Standard Deviation of each set. Replace each price (in each set) by the its corresponding normalized price. Stand back and stare at the pair of normalized prices ... and make some decision. I'm not convinced it'll do much good, but (as is my wont) I generate a spreadsheet to see what I can see. It looks like this: (Click on picture to enlarge) Okay, so I stare and stare ... Wanna play? Click here to download the spreadsheet. ** Ron McEwan writes and tells me that Excel does this ... but they call it "standardized" rather than "normalized".

 

Ralph Stanton

In 1953, in a first year math class, I had an interesting prof. His name was Ralph Stanton. Four years later, when I graduated in 1957, I and a couple of my classmates were invited to teach math at what was known as the "Associate Faculties" of Waterloo Lutheran College, in Waterloo, Ontario. Sure, why not? Sounded like fun. This college did not have a charter to grant degrees. I had to drive to London, Ontario, to have my final exams approved by the math chairman at Western University. However, there were some, including Ralph (who was head of math at the College), who had great plans: Build a brand new university just up the street. Although there were various objections, a number of acres were purchased and (eventually) the University of Waterloo was born. It had an innovative Coop Education program. It is now the largest such program in the world. The old college also became a full-fledged university: Waterloo Lutheran University ... and then (eventually) Wilfred Laurier University, retaining the initials WLU. I taught at U of W for a couple of years and watched with awe as the new university grew. Then (when Heidi had graduated from nurses college), we went to the University of Illinois so I could get a PhD (and Heidi a PhT: Putting Hubby Through). Although my thesis supervisor had arranged a job at Bell labs, Ralph visited us in Illinois and convinced us to return to Waterloo ... which we did. How the university had changed! (Years later, I wrote a short history of Computer Science at Waterloo. It included Ralph's contribution ... but I can't find a copy.)** During the next first few years I watched Ralph at work. Again, in spite of various objections, he managed to convince the powers-that-be to create North America's first Faculty of Mathematics. There were six departments in this new Faculty and Ralph selected me as the first chairman of the Applied Math dept. (Students in the Faculty, competing in the annual Putnam Math Competition, have ranked sixth in North America, after Harvard, MIT, Caltech, Princeton and Toronto and ahead of Berkeley, Cornell, Stanford, Duke, Chicago, Yale and Columbia. Not bad for a young university, eh? I coached the Putnam Team for a few years. I must have been a lousy coach 'cause, with my input, we never did better than 7th.) Soon after, Ralph left for the University of Manitoba. However, his notorious (gawdy?) pink ties are still remembered. Indeed, the pink tie is the icon for the Faculty and hangs with pride on the math building on special occasions: A few days ago, Ralph Stanton died.

**
Don Cowan (the first charman of Computer Science)
kindly sent me a copy of my lost "history"

The preamble to the History of Computer Science
(based upon stories told to me by Ralph Stanton)

In the beginning ... It was 4:27 p.m. The meeting of the board of governors had but one item on the agenda: the recommendation of the Academic Advisory Committee (AAC). Ralph Stanton leaned back, gazed at the clock, then at Ted Batke; both looked weary. Carl Pollock was speaking in favour of the recommendation, but there seemed little hope of other support from the board. Little more than a year had passed since Ralph left the University of Toronto to chair the mathematics department at Waterloo College, a small liberal arts college sponsored by the Lutheran Church and granting degrees through an affiliation with the chartered University of Western Ontario. For members of the math department at the College it meant the curious, annual ritual of driving to London, Ontario, to have final examination papers approved by the math Chairman at Western. But there was something else: co-operative education, a first in Canada. It was a novel scheme championed by Joseph Gerald "Gerry" Hagey, late of the B. F. Goodrich Company and current President of Waterloo College, and Ira G. Needles, president of B. F. Goodrich and chairman of the board of governors. Classes had begun in July, 1957, with some seventy-five students who had completed Ontario grade 12 and enrolled in a "pre-engineering" program on the small campus, alternating 3 month academic terms with 3 month work terms. They constituted the Associate Faculties of Waterloo College. The church-affiliated College now had a non-denominational component (a Faculty of Applied Science, with Les Emery as Principal) which could attract provincial funding not available to sectarian institutions. In 1957, classrooms for the Associate Faculties were located in two prefab huts, Annex 1 and Annex 2, providing some 8,000 sq. ft. of teaching space behind Willison Hall, the only permanent structure on campus besides the Arts building. Ralph Stanton had hired four graduates from the Engineering Physics program at the University of Toronto: Dave Fisher, Jim Leslie (now in Physics at UW), Keith Oddson and Peter Ponzo. In 1958, A. S. "Bert" Barber succeeded George Dufault as director of coordination, handling job procurement and sharing space with the fledgling math department in a house at the Albert and Dearborn corner of campus. But, in the fall of 1957, the recommendation of the Academic Advisory Committee (AAC) constituted a necessary preamble to the creation of a new university - and support was minimal. Ralph Stanton brushed the hair from his forehead, leaned on the table with chin in hands and listened to the debate. It was 4:42 and the meeting was to end at 5:00. p.m. A.M. Snyder, a local businessman and member of the board, had spoken vehemently against the recommendation. Now Carl Pollock was speaking, again. A native of Kitchener and president of Electrohome Canada Ltd., his support was needed, and appreciated, yet his seemed the only supportive voice. Gerald Hagey had been strangely quiet. Ira Needles, as chairman of the Board, had spoken once or twice; it was clear that support did not lie with him. Ralph closed his eyes. It was nearly a month since he and Ted Batke and the other members of the "fearsome five" (Ted Batke, Ron Bowman, Art Cowan, Bruce Kelly and Ralph Stanton) had tramped the few blocks down Dearborn Street to the Schweitzer farm, past the vacant lots to the fields of corn and mud. The chestnut trees hung solemn above the farm house and dark clouds billowed in a grey sky. It was cold and bleak, yet there was a certain measure of excitement: the property was for sale, the price was reasonable, it was less than a country mile from the Waterloo College campus. It was clearly impossible to develop a university on the small campus of a sectarian College. The Schweitzer farm could become, would become, the home of a new university. It meant applying for additional funds from the province and, in particular, a charter to grant degrees. Yet, weren't there already students studying in the new co-operative education environment? Didn't the College already have a complement of arts students? Surely the provincial government would support the application for a charter - and provide the necessary funding. The timing was right. Every qualified youth must have access to a university education. It was becoming a familiar cry in the province. It had taken less than 24 hours for the AAC to agree on the wording of the recommendation: purchase the Schweitzer farm and expand the facilities of the College to accommodate the increased demand for higher education in Ontario. They had approached Gerald Hagey and he had agreed to put it before the Board of Governors of the Associate Faculties. Yet, it now seemed hopeless. At 4:55 there was a rustling of papers in the board room. The meeting was coming to an end. The recommendation would be ignored; too expensive, too grandiose. The AAC had been promised an hour, and the hour had ended. There was little more to debate. Members of the Board were collecting their notes. Then A.R. Kaufman said something, quietly, unobtrusively ... and the rustling of papers stopped. Kaufman was undoubtedly the most respected member of the board. A wealthy industrialist, philanthropist, president of Kaufman Shoes, outspoken proponent and supporter of family planning (long before it became fashionable), he commanded the admiration and, indeed, awe of the community and, more importantly, the board room. Gerald Hagey looked at the tall, gaunt man who had sat for an hour without saying a word. All eyes turned to Kaufman. There was silence in the room. "Gentlemen," Kaufman said softly, "I think we should buy the property ... and we should do it soon." The silence continued for several seconds, then the chairman harumphed and laughed and chuckled - and agreed with Kaufman. Then all agreed. The debate had ended. The Schweitzer farm would be purchased and a new university would be created.

 

Weighting

Recently, I talked about volume weighting stock prices, where prices associated with high volume were more significant. That was fun! Then Donald W. pointed out these weighting schemes for ETFs. ** That reminded me of the days when I dabbled in various schemes for calculating "weighted averages". Like evaluating a basket of stocks: Creating Indexes Equal-weighted Indexes Comparing Active & Passive performances Then there's weighting when it comes to looking at historical performances ... like weighted moving averages: Exponential Moving Average A host of other averages Mamma mia! That, too, was great fun! Mebbe, when people say: "The average was ..." we should respond: "Average? What average?"   ** Although it's not clear (at first), by "equal weighting" the author means equal dollar amounts invested in each, not equal shares. Here's an interesting fact: Had you bought 1 share in each of the 30 DOW stocks, one year ago, your gain would be 43%. That'd be equal-share-weight, eh? (The DOW Index has this weighting. More dollars are invested in stocks with higher prices.) Aah, but had you bought $1.00 in each of the 30 DOW stocks, one year ago, your gain would be 49%. That'd be equal-dollar-weight, eh? Before we get too excited about doing MUCH better, consider the previous year. Equal-share-weighting would have given us -37% whereas equal-dollar-weighting would have given us -36%. Here's a pretty picture (using the current 30 DOW stocks): For reasons I don't understand, the equal-shares weighting should be the same as the actual DOW. I reckon the DOW components have changed over the past year, eh? After all, GM was dumped ... and wasn't CISCO added?

 

FL-what?

When I was staring intently at the ash cloud from that Eyjaf... what's-its-name volcano in Iceland, I noted that the elevation was expressed as FL200, so I needed to know what this flight level stuff was about. After some googling, this is what I found: http://www.gummy-stuff.org/flight-level.htm I'm still working on that ?^#@!& formula ...

 

Stirex Knives

Some twenty years ago, Heidi did a project for a researcher at the Univ. of Waterloo ... on assistive devices. One of the devices was a neat knife. It had a handle at 90 degrees to the blade. When the project was completed, Heidi got to keep the devices. (I guess that was her salary, eh?) For 20 years she's been devoted to that knife. Why aren't all knives made that way? Anyway, her old knife was getting dull, so I googled. Ain't google wunnerful?   Stirex Knives

 

Volume weighting

Once upon a time I got very excited about volume-weighted stock prices. Prices associated with high volumes should have a greater weight, right? I'd calculate the vol-wgt'd price like so: Pvol-wgt = Pclose * Volume / (Average Volume) Then I'd go through every conceivable Buy-Sell strategy (based upon closing prices) and substitute volume-weighted closing prices. For some reason, I lost interest in that ritual. Can you see why? ----------------------------------------------- What's remarkable (to me, at least) is that the violent behaviour of the vol-wgt'd price don't change things so much. For example, long, long ago (and far, far away) I played with a Buy/Sell ritual called ADX: the Average Directional Index. When I introduced volume-weighting (and called the result VDX), it don't hardly change the Buy/Sell signals. For example: (Without weighting it's ADX. With weighting it's VDX.) Indeed, only 3 of the 30 DOW stocks have their (current) signals changed.