1570: "Engineer Syllogism"

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Dr What
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1570: "Engineer Syllogism"

Postby Dr What » Fri Aug 28, 2015 11:32 am UTC

Image
title="The less common, even worse outcome: "3: [everyone in the financial system] WOW, where did all my money just go?""

Blame it on Beret guy! All the money went to his company.

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Re: 1570: "Engineer Syllogism"

Postby Echo244 » Fri Aug 28, 2015 11:57 am UTC

...and then he spends the next few weeks trying to speed up the program, or adjust some of the rules slightly, in order to get it to make money, rather than revisiting the initial assumptions?
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Re: 1570: "Engineer Syllogism"

Postby rmsgrey » Fri Aug 28, 2015 1:10 pm UTC

Maybe beret guy started with a similar, less unambitious syllogism:
1) I am good with numbers
2) The universe is made of numbers
3) Therefore, I can make the universe do whatever I want

Evidence is that he's not wrong.

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Re: 1570: "Engineer Syllogism"

Postby Whizbang » Fri Aug 28, 2015 1:14 pm UTC

1: I am good at poking people in the face
2: The world is full of faces
3: Therefore I - Ow! Why'd you poke me in the face?

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Re: 1570: "Engineer Syllogism"

Postby Montago » Fri Aug 28, 2015 1:22 pm UTC

Well... I managed to double my money on MTGox before it exploded...

i know the potential was much more than doubling but i played it safe..

choosing MTGox was the unsafe part

i miss my money :cry:

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Re: 1570: "Engineer Syllogism"

Postby Jorpho » Fri Aug 28, 2015 1:42 pm UTC

I'm getting a real sense of deja vu from this comic. I'm almost certain I've seen something very much like it somewhere before. But then, it's not impossible for two people to come up with the same idea independently.

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Re: 1570: "Engineer Syllogism"

Postby Whizbang » Fri Aug 28, 2015 1:45 pm UTC

The idea that someone who thinks they are good with numbers or math who then attempts to game the stock market and fails is not a new idea.

I see this as a PSA refresher for all "numbers" people who may be susceptible to this.

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Re: 1570: "Engineer Syllogism"

Postby doglover » Fri Aug 28, 2015 2:20 pm UTC

Jorpho wrote:I'm getting a real sense of deja vu from this comic. I'm almost certain I've seen something very much like it somewhere before. But then, it's not impossible for two people to come up with the same idea independently.


It's the titletext of xkcd 592. So it's just Randall plagiarizing himself again. :wink:

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Re: 1570: "Engineer Syllogism"

Postby cellocgw » Fri Aug 28, 2015 2:35 pm UTC

Whizbang wrote:The idea that someone who thinks they are good with numbers or math who then attempts to game the stock market and fails is not a new idea.

I see this as a PSA refresher for all "numbers" people who may be susceptible to this.


Yep, to borrow a truly disgusting meme, "The only thing that beats a person good at numbers is another person better at numbers and with insider information."
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Re: 1570: "Engineer Syllogism"

Postby nick012000 » Fri Aug 28, 2015 3:03 pm UTC

Echo244 wrote:...and then he spends the next few weeks trying to speed up the program, or adjust some of the rules slightly, in order to get it to make money, rather than revisiting the initial assumptions?

And then getting crushed by all the high-frequency robot trading programs that are already doing this, while having their data-centers located as physically close to the stock exchange as possible to minimize latency.

http://www.bbc.com/news/business-23095938

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Re: 1570: "Engineer Syllogism"

Postby mildanger » Fri Aug 28, 2015 3:09 pm UTC

Jorpho wrote:I'm getting a real sense of deja vu from this comic. I'm almost certain I've seen something very much like it somewhere before. But then, it's not impossible for two people to come up with the same idea independently.


Probably the movie Pi, where the character states very similar assumptions throughout the movie to justify making a stock market prediction program. I don't know if the reference was intentional (I don't think it was taken far enough to be made obvious), or if it's just a coincidence.

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Re: 1570: "Engineer Syllogism"

Postby cryptoengineer » Fri Aug 28, 2015 3:12 pm UTC

See "Dunning Kruger Effect":
https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect

In my experience, anyone who thinks that as an individual investor they can beat out institutions
and High Frequency Trading at day trading is delusional.

But if you're willing to play the long game, you can do very well.

I invested a few hundred dollars in Apple stock back in the mid-80s. It's now enough
to put one of my kids through college.

But most of my money is in low-overhead funds.

ce

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Re: 1570: "Engineer Syllogism"

Postby SimonMoon5 » Fri Aug 28, 2015 4:02 pm UTC

rmsgrey wrote:Maybe beret guy started with a similar, less unambitious syllogism:
1) I am good with numbers
2) The universe is made of numbers
3) Therefore, I can make the universe do whatever I want


Well, it worked (sort of) for Adric with his "block transfer computations".

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Re: 1570: "Engineer Syllogism"

Postby senor_cardgage » Fri Aug 28, 2015 4:21 pm UTC

XKCD #1570 wrote:title="The less common, even worse outcome: "3: [everyone in the financial system] WOW, where did all my money just go?""



I disagree with this being less common. Seems to happen every few years or so.

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Re: 1570: "Engineer Syllogism"

Postby rmsgrey » Fri Aug 28, 2015 4:56 pm UTC

senor_cardgage wrote:
XKCD #1570 wrote:title="The less common, even worse outcome: "3: [everyone in the financial system] WOW, where did all my money just go?""



I disagree with this being less common. Seems to happen every few years or so.


Yeah, but, it's rarely an engineer doing it (usually it's someone who's already in finance), and it's only every decade or two, not every week or so...

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Re: 1570: "Engineer Syllogism"

Postby stickler » Fri Aug 28, 2015 5:02 pm UTC

Jorpho wrote:I'm getting a real sense of deja vu from this comic. I'm almost certain I've seen something very much like it somewhere before. But then, it's not impossible for two people to come up with the same idea independently.


Are you thinking of xkcd 592?
Image
Alt-text: This happens in geek circles every so often. The 'Hey, this is just a system I can figure out easily!' is also a problem among engineers first diving into the stock market.

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Re: 1570: "Engineer Syllogism"

Postby Pfhorrest » Fri Aug 28, 2015 5:27 pm UTC

Personally, as someone prone to seeing certain complex systems as puzzles in need of solving, the stock market never looked to me that way. It has more the smell of a scam than a puzzle. This is a world full of irrational, unpredictable humans with biases and systemic advantages looking to fuck you over as unfairly as they possibly can; why would anyone think they could figure out its rules and expect to be able to push buttons and get predictable responses? You can't "game" a human being, at least not one with two braincells to rub together; that game is sapient and if it sees you trying to play by rules you have inferred from its behavior, it will change the rules because it is actively trying to prevent you from winning at any cost.
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Re: 1570: "Engineer Syllogism"

Postby rhomboidal » Fri Aug 28, 2015 5:37 pm UTC

Maybe the problem is not enough people are engineers.

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Re: 1570: "Engineer Syllogism"

Postby Kabaju42 » Fri Aug 28, 2015 6:44 pm UTC

I wonder if there is someone somewhere that really has figured out how to game the system and just doesn't want to say.... besides of course Warren Buffet

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Re: 1570: "Engineer Syllogism"

Postby orthogon » Fri Aug 28, 2015 7:20 pm UTC

Pfhorrest wrote:Personally, as someone prone to seeing certain complex systems as puzzles in need of solving, the stock market never looked to me that way. It has more the smell of a scam than a puzzle. This is a world full of irrational, unpredictable humans with biases and systemic advantages looking to fuck you over as unfairly as they possibly can; why would anyone think they could figure out its rules and expect to be able to push buttons and get predictable responses? You can't "game" a human being, at least not one with two braincells to rub together; that game is sapient and if it sees you trying to play by rules you have inferred from its behavior, it will change the rules because it is actively trying to prevent you from winning at any cost.

This, basically. It just isn't the kind of problem that appeals to engineers. Pretty early on in an engineer's education you learn that you generally don't get something for nothing, that there are all these conservation laws; if something looks too good to be true, it probably is. A way of making a killing on the financial markets rings the "perpetual motion machine" alarm. At best you're going to be looking to exploit a second or third order effect. Nah, boring.
xtifr wrote:... and orthogon merely sounds undecided.

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Re: 1570: "Engineer Syllogism"

Postby Pfhorrest » Fri Aug 28, 2015 8:24 pm UTC

orthogon wrote:Pretty early on in an engineer's education you learn that you generally don't get something for nothing, that there are all these conservation laws; if something looks too good to be true, it probably is. A way of making a killing on the financial markets rings the "perpetual motion machine" alarm.

That is a really great way of putting it, the perpetual motion machine alarm.

Now that I've started making not-absolutely-terrible amounts of money, I've been looking to see if there maybe really is something I should be doing with it besides just saving it, and seeing if there's any way of getting into this having-money-makes-you-money game that all the superrich seem to live on. And it looks like, short of being a bank or a landlord (which are both way above my abilities still), the possible returns on investment average out to some pretty negligible numbers, like, that would shave a few months at most off my longest-term goals, and honestly it doesn't really make a difference if I end up buying a house a month before my 70th birthday or a month after it. Sure, there are possible higher rates of return, with greater risk... which means there's correspondingly greater possible losses too, and averaging it all out the numbers just don't add up to anything impressive. And sure enough, reading up on professional advice, there's usually something in there about how the greatest source of growth for an investment is "personal contributions" or something like that, which appears to be an obfuscated way of saying that most of what you get out of an investment is just what you put into it, i.e. the investing part didn't matter much, just saving the money is what did it. And yeah, I'm already doing that, so... mostly smells like a scam to me.

I still plan on taking whatever tiny trivial advantage there is to take of the least-scammy parts of it (like index funds) in the near future, but on the whole the entire financial sector feels like gambling in Vegas. The only consistent winners are the people who own the place, everyone else is getting fleeced, and it should be obvious to any outsider that the house always wins in the long run because otherwise they wouldn't still be in business.
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Re: 1570: "Engineer Syllogism"

Postby Mikeski » Fri Aug 28, 2015 11:55 pm UTC

Agree with all of the above; "I can win the stock market" is not how an engineer thinks. Well, a bad one, maybe. (The sort of egotistical "I understand everything" sort that winds up in engineering management via the Peter Principle, after overlooking too many design-breaking issues.)

Engineers aren't particularly good with numbers. We have brains that see patterns, understand systems, and solve problems. Which is why the only stocks I've owned outright have been in the companies I've worked for, via stock options or a stock purchase program. All my 401k/other investments are in broad-based funds, because it's obvious that no one not named Warren Buffett wins the market consistently.

nick012000 wrote:And then getting crushed by all the high-frequency robot trading programs that are already doing this, while having their data-centers located as physically close to the stock exchange as possible to minimize latency.

...that's the real engineer's "solution" to this, maybe; find the loophole to exploit. Nobody can be smarter or luckier, but you might edge out others by being faster.

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Re: 1570: "Engineer Syllogism"

Postby RogueCynic » Sat Aug 29, 2015 3:22 am UTC

Echo244 wrote:...and then he spends the next few weeks trying to speed up the program, or adjust some of the rules slightly, in order to get it to make money, rather than revisiting the initial assumptions?


It's never the initial assumption that is wrong. The person coming up with the idea is too smart for that. :roll:
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Re: 1570: "Engineer Syllogism"

Postby buddy431 » Sat Aug 29, 2015 5:18 am UTC

orthogon wrote:
Pfhorrest wrote:Personally, as someone prone to seeing certain complex systems as puzzles in need of solving, the stock market never looked to me that way. It has more the smell of a scam than a puzzle. This is a world full of irrational, unpredictable humans with biases and systemic advantages looking to fuck you over as unfairly as they possibly can; why would anyone think they could figure out its rules and expect to be able to push buttons and get predictable responses? You can't "game" a human being, at least not one with two braincells to rub together; that game is sapient and if it sees you trying to play by rules you have inferred from its behavior, it will change the rules because it is actively trying to prevent you from winning at any cost.

This, basically. It just isn't the kind of problem that appeals to engineers. Pretty early on in an engineer's education you learn that you generally don't get something for nothing, that there are all these conservation laws; if something looks too good to be true, it probably is. A way of making a killing on the financial markets rings the "perpetual motion machine" alarm. At best you're going to be looking to exploit a second or third order effect. Nah, boring.


But a stock market isn't subject to conservation laws like energy is. The stock market goes up over time because more copper, and zinc, and coal, and lithium is pulled out of the ground this year than it was last year, because more of it is turned into cars and airplanes and brass doorknobs and batteries, because more of the sun's energy is captured and monetized, because more t-shirts are made and more coca-cola is bottled. You don't get something for nothing, that is true, but you do get a real return by doing nothing more than investing money and waiting. In the short term, the stock market can be irrational, but int he long run, the stock market represents the real production of real companies, and it is a positive-sum game. Just by playing, even if you do it sub-optimally, you're likely to come out ahead.
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Re: 1570: "Engineer Syllogism"

Postby aljohnso » Sat Aug 29, 2015 5:52 am UTC

My contribution to this discussion is;

Check out "Long Term Capital Management"

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Re: 1570: "Engineer Syllogism"

Postby StClair » Sat Aug 29, 2015 6:54 am UTC

buddy431 wrote:But a stock market isn't subject to conservation laws like energy is. The stock market goes up over time because more copper, and zinc, and coal, and lithium is pulled out of the ground this year than it was last year, because more of it is turned into cars and airplanes and brass doorknobs and batteries, because more of the sun's energy is captured and monetized, because more t-shirts are made and more coca-cola is bottled.


You realize that all of the above resources are finite? The first clause of your second sentence, especially, and even solar energy over a long enough timeframe. Stars run down and go out.
WIthin my own lifetime, I would not be greatly surprised to see your statement cease to be true for one or more of those things ("peak ____").

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Re: 1570: "Engineer Syllogism"

Postby badmartialarts » Sat Aug 29, 2015 8:52 am UTC

The problem with the guy in this comic is that he didn't have the true 216-digit number.

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Re: 1570: "Engineer Syllogism"

Postby orthogon » Sat Aug 29, 2015 9:19 am UTC

buddy431 wrote:But a stock market isn't subject to conservation laws like energy is. The stock market goes up over time because more copper, and zinc, and coal, and lithium is pulled out of the ground this year than it was last year, because more of it is turned into cars and airplanes and brass doorknobs and batteries, because more of the sun's energy is captured and monetized, because more t-shirts are made and more coca-cola is bottled. You don't get something for nothing, that is true, but you do get a real return by doing nothing more than investing money and waiting. In the short term, the stock market can be irrational, but int he long run, the stock market represents the real production of real companies, and it is a positive-sum game. Just by playing, even if you do it sub-optimally, you're likely to come out ahead.

I'm not disputing this; as Pfhorrest says, it ought to be possible to track inflation or some index or other in the same way that it ought to be possible to extract 1kW from a square metre of solar panels, and in practice you'll get less because of losses (including fees, finite speed of transactions etc in the financial case), but hopefully not too much less; how efficiently you can do it is firmly in the purview of what engineers do. Alternatively, you can trade off risk against return, in which case you're gambling: hoping that you bought the winning lottery ticket. I'm not sure of the exact terminology, but somebody above mentioned Day Trading, which I assume is the kind of thing our unfortunate character is trying to do; i.e. to get a very much higher return on investment than the rate of growth of the economy would suggest, but with the implication that he has a way of doing it without the commensurate risk. This is what feels like a solar panel of 1000% efficiency to me.
xtifr wrote:... and orthogon merely sounds undecided.

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Re: 1570: "Engineer Syllogism"

Postby ijuin » Sun Aug 30, 2015 6:16 am UTC

It's easy enough to handle your investments such that on average they keep pace with the overall growth of the stock market, but anything that grows faster than the overall market is doing so at the expense of somebody else. Yes, the pie is continually growing bigger as the aggregate collection of traded companies prosper, but if you want to "rise faster than the tide", then you have to be able to second-guess the other investors, since the best time to sell is RIGHT BEFORE everybody else sells.

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Re: 1570: "Engineer Syllogism"

Postby zanglebert » Sun Aug 30, 2015 11:48 am UTC

ijuin wrote:It's easy enough to handle your investments such that on average they keep pace with the overall growth of the stock market, but anything that grows faster than the overall market is doing so at the expense of somebody else. Yes, the pie is continually growing bigger as the aggregate collection of traded companies prosper, but if you want to "rise faster than the tide", then you have to be able to second-guess the other investors, since the best time to sell is RIGHT BEFORE everybody else sells.


Which some (non institutional, even) investors or traders seem to be able to do. [1] [2]

Simplifying, "beating the market" is probably a function of complex algorithmic development, substantial funding, inside information, or finally, human skill (a.k.a. "talent" or intuition, plus training, plus discipline).

The first three variables are only available to institutional actors, although engineers could perhaps be fooled to think that the 'algorithm' part is within their reach (and for a few exceptions, it actually might be).

It's the last point that's the most tempting, and perhaps also the most ruinous. However, just by itself, it wouldn't make such a skill any less relevant, or cast doubt on it even existing, if it turns out only a small number of people possess it. Just because you are unlikely to win, say, your local chess championship doesn't mean chess is not a game of skill (replace by 'Poker', if you prefer). The skill perhaps being rare, and you (or me) most likely not possessing it doesn't even entail that you, as an individual, has absolutely no incentive to try playing the market anyway... true, you're unlikely to win by the global statistics about market performance, but you are (for obvious reasons) mainly interested in what your personal degree of this skill might be, and trying your hand at it is one way to figure that out.

Perhaps best then to read this xkcd as:

The intuitive skill to predict numerically represented group behavior, i.e. markets, and possibly formalize this intuition in the form of an algorithm is not necessarily a skill correlated with the skill set of people that, stereotypically speaking, are "good with numbers".


(EDIT) Consider "playing" this to get a first estimate of your personal skill value (without the need to risk any money).
Last edited by zanglebert on Sun Aug 30, 2015 5:59 pm UTC, edited 1 time in total.

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Re: 1570: "Engineer Syllogism"

Postby koreiryuu » Sun Aug 30, 2015 2:04 pm UTC

This one particularly made me lol out loud because the first two panels (technically three, I know, shut up) is a simplified explanation reflecting how my gf convinced me to start studying investing and putting money into an IRA and brokerage account. Then a little more than a week ago I put my first $500 into a small cap mutual fund chosen after a little research, after which almost immediately began losing money because of the massive barrage of selling from the worries over China's market. I read this comic and out loud at work, in a relatively quiet room of 23 other employees, I abrupted "I know right?!"

I mean, I didn't yell it, but loud enough to make me feel foolish.

(That's the official end of my post, you can stop reading if you like. Considering how the comic is relevant to the topic of investing in the market, what follows is me personally persuading readers who haven't yet to start learning about market investing, then followed by some MINOR investing advice my gf's father gave us that I agree with.)

=-=-=-=-=-=-=-=-=

Those who haven't given the topic of market investing any consideration usually have some notion that it's just high stakes gambling. But when you actually look into the topic and do a little bit of homework, you find out that the BUY! SELL! BUY! SELL! volatility you see in TV shows and the movies is just an exaggerate representation of a small part of what it is. The core of market investing is putting your money in companies that show potential in succeeding in exchange for letting their profit benefit you over a period of time; the idea wasn't initially based on the attempt of getting wealthy in a month. There are investing options that are at high risk with the promise of high return, but these aren't options that you have to participate in. Market investing isn't gambling in the strict definition of the word; the word "gambling," at least here in the United States, implies that the risk of losing your investment is very high. That losing your money is not a surprising outcome at all, but the probability of profit is juuuuust appealing enough to deal with the risk. Can you lose money in the market even if you play it safe? Sure. But in comparison you can also get sick even though you do everything in your power to play it safe and stay well, yet leaving your house every day isn't generally considered gambling with your health.

Like I said before, my gf's father, aware we were studying and researching the topic and looking into investing options, gave us a piece of advice that makes a lot of sense to us and that we intend to follow. If as an investor yourself the following advice doesn't sound good to you or you have a criticism about it, that's fine, I am always open to consider other opinions, but try to remain respectful please. There's no real point in degrading anyone for giving an opinion you don't agree with. Disagree openly to help inform the good public, sure, but being disrespectful is unnecessary and inappropriate.

Anyway, to summarize and paraphrase what he said (and remember, while I agree with the statement in general, my opinion isn't 100% reflected in these words):
"Regardless of your other activities in investing into the market, whether only sticking to long term opportunities or also spending into short term options for quick buying and selling strategies, do some research (or use a certified adviser once if you don't feel confident in researching yourself) to find a lifelong investing option that is of a lower risk (read, "lower," not "lowest") and that which most appeals to you. Afterwards, absolutely resolve to refuse to touch it for rest of your life until you retire (meaning, add to it sure, but don't withdraw a dime until it's time to for your retirement); ignore soothsayers of doom, don't panic during economic hard times like what happened in 2008/2009, just leave it alone. The biggest mistake anyone can make is withdrawing their long term stakes in fear that the market will never return to stability and that their investment will never return to profit. The market will always come back up and your investment will be fine."

Now, no one can predict exactly what's going to happen in the future; if tomorrow the United States gets hit by nuclear bombs and the country turns into a Fallout series landscape, then maybe the market won't recover. He's obviously just reflecting on his experiences and his own research into the long term results of severe market declines. His investments lost so much value during the 2008 crisis, but, presently, even after the recent decline over China's market worries, his investments are in the green. While many of his friends and family members panicked and sold, cutting their losses because they expected things to get worse, he didn't and is better off for it. In his own personal research, the market has always recovered.
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Re: 1570: "Engineer Syllogism"

Postby orthogon » Sun Aug 30, 2015 5:05 pm UTC

Again, I have no problem with that, and it seems that the type of investment you're taking about is just a point on the continuum that's slightly more risky with slightly better return than a tracker fund, say. At their best, markets fulfill a vital social function in allowing people who desire different risk/benefit profiles to trade positions. I just assumed the comic was talking about the buy/sell high stakes activity you refer to.

Being good with numbers can be beneficial in financial situations; for example when taking a mortgage in the uk, you're often presented with two options: one with a higher interest rate and another with an "arrangement fee". In this case there often really is a right and wrong answer: you work out how much extra interest you'll pay over the period of the special deal and if it's less than the fee, you take the higher rate. (There's a middle ground where the fee is lower but not by enough to make up for the interest you could earn on the fee in the meantime). Possibly mathematically challenged people get no-brainers like this wrong all the time, but you wouldn't expect to benefit on financial markets in the same way, since you're up against other similarly mathematically able people.
xtifr wrote:... and orthogon merely sounds undecided.

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Re: 1570: "Engineer Syllogism"

Postby ijuin » Mon Aug 31, 2015 5:28 am UTC

Long-term investment is a matter of determining which companies are going to be profitable in the long run (across multiple quarters/years). Short-term investment is instead a matter of predicting the behavior of other investors, which is where the "gambling" analogies come into play. Whenever a bandwagon effect starts going (i.e. when investors start buying/selling a particular stock because others are doing the same), then your profit is larger the earlier you jump onto the bandwagon. Extreme market movements then happen when these investors decide that failing to jump onto the bandwagon at all is an even worse situation than to being a Johnny-come-lately (and therefore "everybody" tries to buy/sell).

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Re: 1570: "Engineer Syllogism"

Postby Wee Red Bird » Mon Aug 31, 2015 6:56 am UTC

So many have lost it all thinking they can predict numbers in a game of roulette. If you just look at the numbers, then the stock market is just as unpredictable.

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Re: 1570: "Engineer Syllogism"

Postby zanglebert » Mon Aug 31, 2015 11:19 am UTC

Wee Red Bird wrote:So many have lost it all thinking they can predict numbers in a game of roulette. If you just look at the numbers, then the stock market is just as unpredictable.


Hm... Not really.

Markets are well known to exhibit momentum and autocorrelation patterns. Roulette, on the other hand, hardly so (unless the calibration of the table went wrong).

Whether you are able to (consistently) predict market direction is another matter of course, but markets are not historyless random processes, that's (by now) almost uncontroversially accepted in the relevant fields.

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Re: 1570: "Engineer Syllogism"

Postby Copper Bezel » Mon Aug 31, 2015 11:25 am UTC

Right, but I think the contention is that the benefits of strategy plateau at a certain level of skill, but chance still plays a huge role, so people who perform unusually well are statistical oddities rather than uniquely capable people and shouldn't have any better odds of performing unusually well tomorrow than anyone else with a professional level of capability.
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Re: 1570: "Engineer Syllogism"

Postby zanglebert » Mon Aug 31, 2015 11:41 am UTC

Copper Bezel wrote:Right, but I think the contention is that the benefits of strategy plateau at a certain level of skill, but chance still plays a huge role, so people who perform unusually well are statistical oddities rather than uniquely capable people and shouldn't have any better odds of performing unusually well tomorrow than anyone else with a professional level of capability.


That's what some people think (even if I don't), and it's testable as well (and some studies present evidence in favor of it). So, absolutely valid position. I just wanted to correct the (still quite prevalent) idea that markets are really just "like roulette". They might be no better to *perform* at than roulette, but formally, they definitely behave different.

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Re: 1570: "Engineer Syllogism"

Postby Wee Red Bird » Mon Aug 31, 2015 12:54 pm UTC

zanglebert wrote:
Wee Red Bird wrote:So many have lost it all thinking they can predict numbers in a game of roulette. If you just look at the numbers, then the stock market is just as unpredictable.


Hm... Not really.

Markets are well known to exhibit momentum and autocorrelation patterns. Roulette, on the other hand, hardly so (unless the calibration of the table went wrong).

Whether you are able to (consistently) predict market direction is another matter of course, but markets are not historyless random processes, that's (by now) almost uncontroversially accepted in the relevant fields.


If you only look at the numbers and trends in the stock market, you will eventually lose. There are factors outside repeating trends that can cause stock to rise (announcement of a takeover) or drop (someone in a sandy country deciding to produce lots of oil).
Using numbers alone is unreliable.

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Re: 1570: "Engineer Syllogism"

Postby zanglebert » Mon Aug 31, 2015 1:11 pm UTC

Wee Red Bird wrote:If you only look at the numbers and trends in the stock market, you will eventually lose. There are factors outside repeating trends that can cause stock to rise (announcement of a takeover) or drop (someone in a sandy country deciding to produce lots of oil).
Using numbers alone is unreliable.


"Unreliable", perhaps, but the claim of quantitative trading methods and "classical" technical analysis is not (or at least, shouldn't be) that there are no outside factors, but only that, even if outside factors exist and influence the market, ignoring these outsides factors still allows you to trade profitably - so, perform better than the market as a whole. That's where risk control enters (i.e. position sizing and stop losses) the picture, to prevent being "wiped out" by unexpected external factors.

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Re: 1570: "Engineer Syllogism"

Postby Jonny99 » Tue Sep 01, 2015 3:01 pm UTC

Edward Thorp and James Simons are good at understanding numbers. They have made millions (Thorpe) or billions (Simons) by using their skills in the stock market.


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