# Why make stories out of noise?



## Tyler Durden (31 January 2011)

One of the best books I've read is Fooled by Randomness by Nassim Taleb, where I learnt the difference between noise and information. So to me, variations in SP in a day is noise to me.

But when I turn on the news at 6pm, or read the paper online, it seems like everyday the market is open they make a story to rationalise and explain the movements in the market that day. For example, recently the explained a drop as being due to the Chinese New Year holiday, and now they're using the Egypt unrest story.

Why can't noise be just noise? People buy and sell everyday for various reasons. Why do we have to attribute movement to stories like these? How accurate do you think it is to do this? I mean, when I heard the Chinese New Year story, I thought it was pretty ridiculous that people would be selling their shares just because China would be taking a few days off for the holiday. I mean, really? The market reacts to things like that??


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## motorway (31 January 2011)

Tyler Durden said:


> One of the best books I've read is Fooled by Randomness by Nassim Taleb, where I learnt the difference between noise and information. So to me, variations in SP in a day is noise to me.
> 
> But when I turn on the news at 6pm, or read the paper online, it seems like everyday the market is open they make a story to rationalise and explain the movements in the market that day. For example, recently the explained a drop as being due to the Chinese New Year holiday, and now they're using the Egypt unrest story.
> 
> Why can't noise be just noise? People buy and sell everyday for various reasons. Why do we have to attribute movement to stories like these? How accurate do you think it is to do this? I mean, when I heard the Chinese New Year story, I thought it was pretty ridiculous that people would be selling their shares just because China would be taking a few days off for the holiday. I mean, really? The market reacts to things like that??




Yes good book he gives a good antidote on pages (in my edition).

164 to 168  inclusive 


Motorway


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## Garpal Gumnut (31 January 2011)

Nassim is one smart fellow. 

gg


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## Noddy (31 January 2011)

Tyler Durden said:


> One of the best books I've read is Fooled by Randomness by Nassim Taleb, where I learnt the difference between noise and information. So to me, variations in SP in a day is noise to me.
> 
> But when I turn on the news at 6pm, or read the paper online, it seems like everyday the market is open they make a story to rationalise and explain the movements in the market that day. For example, recently the explained a drop as being due to the Chinese New Year holiday, and now they're using the Egypt unrest story.
> 
> Why can't noise be just noise? People buy and sell everyday for various reasons. Why do we have to attribute movement to stories like these? How accurate do you think it is to do this? I mean, when I heard the Chinese New Year story, I thought it was pretty ridiculous that people would be selling their shares just because China would be taking a few days off for the holiday. I mean, really? The market reacts to things like that??




Agree with you 100%
In the last couple of days I've heard the share market drop blamed on -
Floods levy
Drop on Wall Street
Chinese new year
Spain going broke
Trouble in Egypt etc. etc.
"Obviously the trouble in Eqypt is largely resolved as the market kicked up this afternoon' ???  I don't think so. All the observations border on the ridiculous IMO.


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## So_Cynical (31 January 2011)

bloomberg.com said:
			
		

> Shipping traffic through the Suez Canal has remained unaffected by protests in Egypt over the past six days, an official with the waterway’s operator said today.
> 
> Thirty-eight ships passed through the canal today carrying 1.5 million tons of cargo, Suez Canal Authority spokesman Mahmoud Abdelwahab said in a telephone interview. That compares with 47 vessels that transited the waterway yesterday, he said.
> 
> More than 4 million barrels a day of crude oil, or *4.5 percent of global production, are shipped through the canal or a pipeline that runs adjacent to it,* according to New York-based McQuilling Services LLC. The world’s longest man-made waterway is the fastest crossing from the Atlantic Ocean to the Indian Ocean.




http://www.bloomberg.com/news/2011-...-by-egyptian-unrest-canal-authority-says.html

The above and the fear of "freedom" spreading in the region is a valid reason for a 2 to 3% global market fall IMO, genuine political unrest is not noise....Chinese NY...yep that's noise.

Day to day SP movement is only relevant if you want or need to buy/sell on that day....its not unusual for me to hold an open trade or 100 to 200 days or more...what's important is the SP on the day i buy and the day i sell.


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## ROE (31 January 2011)

isn't everything is noise regardless of what it is until you use that information and buy  or short 

the GFC crash the market 50%, you didn't buy ..it's noise but if you buy that is valuable information


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## tothemax6 (1 February 2011)

Tyler Durden said:


> One of the best books I've read is Fooled by Randomness by Nassim Taleb, where I learnt the difference between noise and information. So to me, variations in SP in a day is noise to me.



Yeah that exactly the term I have always used - noise. Or perhaps hash, or squiggles. I think a lot of technical analysis is simply reading tea leaves on the bottom of a cup. Sure, there may be _some _information in the price (_sometimes_), but I think some people delude themselves on the predictive capacity of drawing lines through the squiggles. 
And yes, the 'the All Ords was up/down today on X' is always a good one. A lot of the time they just find some crudely correlated X and say "thats it, X did it". Correlation does not imply causation, as all should know .


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## sammy84 (1 February 2011)

tothemax6 said:


> Yeah that exactly the term I have always used - noise. Or perhaps hash, or squiggles. I think a lot of technical analysis is simply reading tea leaves on the bottom of a cup. Sure, there may be _some _information in the price (_sometimes_), but I think some people delude themselves on the predictive capacity of drawing lines through the squiggles.
> And yes, the 'the All Ords was up/down today on X' is always a good one. A lot of the time they just find some crudely correlated X and say "thats it, X did it". Correlation does not imply causation, as all should know .




:iamwithst

You obviously have no idea what technical analysis entails or Nasem's book is about.


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## KurwaJegoMac (1 February 2011)

Noddy said:


> Agree with you 100%
> In the last couple of days I've heard the share market drop blamed on -
> Floods levy
> Drop on Wall Street
> ...




Some portion of a market drop can be attributed to some of those things, but not always. Lots of those events will have impacts on supply and demand for resources, consumables, services, etc so major events such as those can _influence_ a move but are generally not the _cause_ (there are exceptions of course)

Overall, the reason we hear these statements all the time is that at the end of the day, the uneducated and naive investor wants a reason to blame for their stocks losing value. They don't want to hear that they made a bad choice - they want to hear that the market dropped because of some event in some far off distant land. That way they can feel happy and content that 'they were right' and they only lost out because of events outside of their control.

Once you've been investing for a while you realise that most of the _stories_ are in fact 'noise' and you begin to focus on information that does impact stocks (supply, demand, fundamentals, price action, etc)


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## cutz (1 February 2011)

Noise is just a filler between the ad breaks, some noise is the ad.


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## tothemax6 (2 February 2011)

sammy84 said:


> :iamwithst
> 
> You obviously have no idea what technical analysis entails or Nasem's book is about.



So technical analysis is not drawing lines through squiggles? Or giving fancy names to types of squiggles like 'double inverted barbecue' or 'magic shoe formation' etc and then believing one has gained superior insight into the future price?


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## sammy84 (2 February 2011)

tothemax6 said:


> So technical analysis is not drawing lines through squiggles? Or giving fancy names to types of squiggles like 'double inverted barbecue' or 'magic shoe formation' etc and then believing one has gained superior insight into the future price?




I can't help but bite a little. It is not about superior insight. It is about finding a method which delivers a positive expectancy. Won't always be right and certainly doesn't provide superior insight. Still makes money and that is what is important. I'll leave it at that, as I can tell from your response you won't actually absorb anything that I have to say anyway.


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## Sean K (3 February 2011)

9/11 was noise and a story.


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## tothemax6 (3 February 2011)

sammy84 said:


> I can't help but bite a little. It is not about superior insight. It is about finding a method which delivers a positive expectancy. Won't always be right and certainly doesn't provide superior insight. Still makes money and that is what is important. I'll leave it at that, as I can tell from your response you won't actually absorb anything that I have to say anyway.



I give every opinion consideration .
Sure if it produces a positive expectancy, that's all that counts. However I would say that a man who wins a 50/50 game 60% of the time has not created positive expectancy - he is just lucky.


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## motorway (3 February 2011)

tothemax6 said:


> So technical analysis is not drawing lines through squiggles? Or giving fancy names to types of squiggles like 'double inverted barbecue' or 'magic shoe formation' etc and then believing one has gained superior insight into the future price?




No what ever that is is something else..

As I said a good TA  description is found in the book



> Yes good book he gives a good antidote on pages (in my edition).
> 
> 164 to 168 inclusive
> 
> ...




TA is an antidote to Noise ( or should be )
Good TA is so you do not get fooled by randomness.

Motorway


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## grandia3 (3 February 2011)

spare these people
they work hard for a living


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## prawn_86 (21 February 2011)

Watching some clown on Skybusiness right now. Can see he is blatantly making up reasons for why stocks may have moved down.

It must be hard to come up with a new reason everyday...


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## ChaoSI (21 February 2011)

just for interest sake, psychologically speaking, humans try and attribute motivation and causes to everything. Because ultimate humans try and understand and explain the world around them and we do it everyday through scripts, assumptions and schemas.
So when we see something happen we try and make sense of it by creating a theory, and because we usually go with what we come up with first a lot of the time the theory is without proof and scientifically (or statistically) not significant.

so um... yeah 
here's


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## burglar (21 February 2011)

prawn_86 said:


> Watching some clown on Skybusiness right now. Can see he is blatantly making up reasons for why stocks may have moved down.
> 
> It must be hard to come up with a new reason everyday...




Don't keep us in suspense!


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## GumbyLearner (21 February 2011)

ChaoSI said:


> just for interest sake, psychologically speaking, humans try and attribute motivation and causes to everything. Because ultimate humans try and understand and explain the world around them and we do it everyday through scripts, assumptions and *schemas.*
> So when we see something happen we try and make sense of it by creating a theory, and because we usually go with what we come up with first a lot of the time the theory is without proof and scientifically (or statistically) not significant.
> 
> so um... yeah
> here's




Do you mean something like this ChaoSI?


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## divs4ever (24 July 2021)

ROE said:


> isn't everything is noise regardless of what it is until you use that information and buy  or short
> 
> the GFC crash the market 50%, you didn't buy ..it's noise but if you buy that is valuable information



 yes that is similar to the way i play it  

noise , to me ,  includes  media articles ('financial and economic news ' )  the stuff in my inbox that includes broker reccomendations .

 i look at what is in the public view  and ask myself ' will it move the market ( or stock price) ? ' if yes which way ... then  can i take advantage of that movement 

 obviously if the info is about a stock i have no interest in  , then it is noise  , if it moves a stock i am interested in it MIGHT be valuable 

i missed ( wasn't investing ) in the GFC  and was a novice in 2011 so missed a lot f opportunities ( i had a very irregular work schedule then also  , so couldn't always watch my mistakes happen


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## Smurf1976 (24 July 2021)

If I were being paid to talk for 60 seconds about the stock market, weather, traffic, energy supply, sports or any other subject and have to fill that air time each day well then I'll have to say something.

Just because there's nothing useful to say doesn't avoid the need to say it and fill the allotted time so far as the media's concerned. Hence there's still a full weather report to say it's fine and 20 degrees, there's still a full traffic report even if there's no traffic on the roads and so on. Time is scheduled, advertising is booked, person must speak regardless of whether there's really anything to say or not.

On a bigger scale, the TV news always finds something to fill 30 minutes with. If there's no actually important news well they go and find some filler - anything from the council re-sealing a road to a minor traffic accident to the routine operation of a long established factory can be stretched out to a substantial news report if there's a need to fill time.

More specific to the stock market, well if you were paying me to supply you with a newsletter then I'd better write one. Nothing worth saying? Doesn't change the fact that you've paid for a newsletter and I need to write one in order to keep you paying me. If I don't write it then fair chance you stop paying and that's a problem for me, so I'll write regardless of whether there's anything worth saying or not.

I've very intentionally illustrated how it works in this post. Lots of words basically repeating the exact same thing over and over just going through different examples and using different words to say the same thing about all of them. That's how you turn nothing worth saying into a full 60 second report.

Now just replace this sentence with the back to studio tag line and we're done. 

(In case anyone thinks I'm joking, not really. Time has to be filled if someone's paying to advertise immediately before or after it, newsletters need to be written and so on. Always bear this in mind).


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## divs4ever (25 July 2021)

indeed , but if the underlying message is fear and uncertainty ( that is supposed to be delivered ) do you buy , sell or go hide , each answer is correct for somebody  , every message  but not everybody at the same time 

 the contrarian  will buy , the short-seller will sell  , the trend trader will play the trend . and maybe passive investors will watch from the sidelines ( or go for a coffee )

 the trick is to make the right move for YOU ( not me or the brokerage houses )

 so the noise can be useful  , but don't let it distract you from what you should be doing


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