The Exceptional Wealth Accumulation Ideas and Thinking Thread

MRC & Co said:

Oh ok, so how do you explain the fall of gold recently and the falling of yields, as far as fundamental factors?

What do you arbitrage? I am no expert on this, but I gather it is not stat arb, but 'proper' arb, i.e. no risk? If so, I would wonder how, considering this market is pretty much zipped up by high speed algo bots as far as I am aware.......

No attack, just valid questions.

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MRC

Let's start with the easy one first.

Falling Yields. Depending on which part of the yield curve you are looking at, you will have very different analysis.

At the SHORT end, which is controlled by Central Banks, they obviously can set any rate that they deem fit. Generally, from this rate, a spread is established at different maturities expressing a number of factors: risk, inflation, time value, etc.

Now you don't mention which maturity you consider to be falling. But if I assume the 10yr Note, I would actually say it is rising [from it's lows] This represents among many things, a perception of potential inflation as a risk.

As to the fall of Gold. Waynes chart of seasonal factors is as good explanation as I have seen. In a nutshell, gold fluctuates like all financial markets. I think, that gold is still in a bull market and has yet to see it's blow off top, which will coincide with possibly the bottom in the Bond market. But of course I could be totally wrong.

Now that is a real reversal on my part. I've tried in the past to value gold based on historical inflation rates, which actually works reasonably well. The inflation that is being potentially created currently however is several orders higher than anything we've seen in the past, including the 1930's.

GS and their front running is an example of high-tech arbitrage. They arb the order flow. Obviously I don't [and can't] do that, but there are plenty of opportunities available.



jog on
duc

ducati916 said:

No, I never stated that you liked technology. I simply observed that your generic advice was of no practical use, as even in a cyclical bull market driven by a credit expansion, not all sectors benfitted [or benfit] evenly. There are BIG winners and small winners. Identifying the BIG winners early enough is the purpose of this thread [or was once upon a time]

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And here is the fundamental choice that readers of this now full of BS thread have to choose from.

Try and wait to pick the next winner. And not acting until you know you are 100% right. To go with that all the paralisis by analysis that that will inevitably lead to. All the but this .... and Not that because ...... thinking. All the valid approaches thrown away because the need to be right and fear of failure greatly outweigh the odd hit to the ego of acting and getting the odd move wrong.

OR,

Approach the game with a entrepreneurial spirit. Knowing that you will not be able to pick exactly the next great theme but if you look after your own patch there is some great gains to be had. That inspite of the call of the apocalyptic ending to the world there is always opportunities to be caught. And unlike Mr need to be right above you don't have to pick the winner.

Quickest way to Exceptional Wealth Accumulation is start a business and build your income and add assets.

Trembling Hand said:

And here is the fundamental choice that readers of this now full of BS thread have to choose from.

Try and wait to pick the next winner. And not acting until you know you are 100% right. To go with that all the paralisis by analysis that that will inevitably lead to. All the but this .... and Not that because ...... thinking. All the valid approaches thrown away because the need to be right and fear of failure greatly outweigh the odd hit to the ego of acting and getting the odd move wrong.

OR,

Approach the game with a entrepreneurial spirit. Knowing that you will not be able to pick exactly the next great theme but if you look after your own patch there is some great gains to be had. That inspite of the call of the apocalyptic ending to the world there is always opportunities to be caught. And unlike Mr need to be right above you don't have to pick the winner.

Quickest way to Exceptional Wealth Accumulation is start a business and build your income and add assets.

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TH

Quite amazing how you have managed to miss the entire point.

With regard to your suggestion:
*What is the success/failure rate of new small businesses?
*What is the timeperiod required?
*What exit strategy?
*What business skills?

The list could go on.

jog on
duc

ducati916 said:

MRC

Now you don't mention which maturity you consider to be falling. But if I assume the 10yr Note, I would actually say it is rising [from it's lows] This represents among many things, a perception of potential inflation as a risk.

As to the fall of Gold. Waynes chart of seasonal factors is as good explanation as I have seen. In a nutshell, gold fluctuates like all financial markets. I think, that gold is still in a bull market and has yet to see it's blow off top, which will coincide with possibly the bottom in the Bond market. But of course I could be totally wrong.

GS and their front running is an example of high-tech arbitrage. They arb the order flow. Obviously I don't [and can't] do that, but there are plenty of opportunities available.

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Yes, sorry, I was not talking of the short end. You would call yields rising when for the past few weeks, they have been falling (10 year by nearly 75bps). Ok. Like to see you trade that one......

Gold has fallen a bit less than $100 on seasonal factors alone.........

GS front running is front running, just as a scalper does so. It's not arb, there are still many risks of a manual execution coming in at the same time or even another algo trader.

I doubt you have the capacity to arb in the way WayneL mentioned, for example, the Nikkei on the Singapore and Osaka exchanges.

I still see no examples of valid arb you could (let alone do) undertake..........

MRC & Co said:

Yes, sorry, I was not talking of the short end. You would call yields rising when for the past few weeks, they have been falling (10 year by nearly 75bps). Ok. Like to see you trade that one......

Gold has fallen a bit less than $100 on seasonal factors alone.........

GS front running is front running, just as a scalper does so. It's not arb, there are still many risks of a manual execution coming in at the same time or even another algo trader.

I doubt you have the capacity to arb in the way WayneL mentioned, for example, the Nikkei on the Singapore and Osaka exchanges.

I still see no examples of valid arb you could (let alone do) undertake..........

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MRC

GS is front-running, and I agree it's not a true arbitrage in that there is still risk associated, but it's a million miles from what a scalper does. GS buys and sells in a microsecond at the same price and pockets a fee from the exchange. It's pretty low risk. However execution risk remains for all market based arb. trades, so no major differences.

No, I only trade US markets. As I said to tech, I have no interest in discussing my trades, as it is highly competitive. Why expound on a strategy that might add competition.

jog on
duc

MRC & Co said:

I still see no examples of valid arb you could (let alone do) undertake..........

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I don't think he will discuss, but risk arbitrage [liquidation and pairs trading] is within the realm of retail traders

mazzatelli1000 said:

I don't think he will discuss, but risk arbitrage [liquidation and pairs trading] is within the realm of retail traders

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I've written stuff and posted tidbits in the past on my blog.
http://leduc998.wordpress.com/category/arbitrage/

Have a look if interested.

jog on
duc

ducati916 said:

The list could go on.

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Yep,
I'm sure you could.

ducati916 said:

I've written stuff and posted tidbits in the past on my blog.
http://leduc998.wordpress.com/category/arbitrage/

Have a look if interested.

jog on
duc

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Awesome!! Thanks I'll have a read
I see you cover Convertible arbs as well

GS seeks out algo orders and then tries to frontrun them, it would not take a microsecond and once the order is filled, it is not guaranteed of being hit from the other side by the same algo and as such, leaves it exposed whilever that position is open. Far from execution risk remains for all market based arb. trades, so no major differences.
Low risk, but not exactly arbitrage. I also fail to see how spread trading constitutes arbitrage. Assuming the definition:

The simultaneous purchase and sale of the same securities, commodities, or foreign exchange in different markets to profit from unequal prices.

On that note, Duc, you arb US markets from NZ?

Risk arbitrage also entails HUGE risks, ask the 'father' of stat arb who blew up his fund. Don't see any significant edge in it, as far as risk or profitability, as seen by results of top performing hedge funds (unless you can show me evidence to the contrary).........

MRC & Co said:

GS seeks out algo orders and then tries to frontrun them, it would not take a microsecond and once the order is filled, it is not guaranteed of being hit from the other side by the same algo and as such, leaves it exposed whilever that position is open. Far from execution risk remains for all market based arb. trades, so no major differences.
Low risk, but not exactly arbitrage. I also fail to see how spread trading constitutes arbitrage. Assuming the definition:

The simultaneous purchase and sale of the same securities, commodities, or foreign exchange in different markets to profit from unequal prices.

On that note, Duc, you arb US markets from NZ?

Risk arbitrage also entails HUGE risks, ask the 'father' of stat arb who blew up his fund. Don't see any significant edge in it, as far as risk or profitability, as seen by results of top performing hedge funds (unless you can show me evidence to the contrary).........

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MRC

As regards GS, no they hit the bid/ask in a microsecond, so their risk is tiny. Do I do this? I wish!

Simultaneous for me is two mouseclicks, how long to execute, a few seconds I guess, but, that's a risk I'm happy to take.

Risk arbitrage is a misnomer. It's not really an arb. at all, I don't tend to become involved in this at all.

Anyway, I'm not trying to sell you on arbitrage at all, far from it, the less who participate, the happier I'll be.

jog on
duc

ducati916 said:

motorway

All, means all that I am aware of. That most likely includes all the traditional well documented technical computations.

Are there trends? Yes, quite obviously there are, as stock prices do not exhibit independence.

There are turning points.

Can they be identified prior to the turning point? No, not consistently. Some will do so, and attribute it to skill, method, analysis, etc. I call it luck or random.

The magnitude of a trend
Will be proportional to Two things

The ultimate size of the niche that the trend is filling ( + overshoot )
and the rate that energy ( work done ) can be utilized to fill it..



I have to say I think this is nonsense. The reasons are that who can know beforehand the size of a niche, and you immediately invalidate any argument to the contrary by including + overshoot. As to the rate [energy] this concept is so nebulous as to be superfluous to any analysis.

jog on
duc

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The problem I think probably lays with this

All, means all that I am aware of

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This possibly is such such a small "set"
as to be statistically insignificant

Hence

I have to say I think this is nonsense.

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I have 197 opportunities on the ASX ( Total market )
to drill down on as of this date

These meet criteria ( at a first blush )
That deal with the italicized text in the quote...

There are two aspects to such criteria

as a mean reverting market cycle signal
as a particular get on & off opportunity cycle
of particulars

This is not predict and set

but more like weather forecasting

Like any energetic phenomena
structure anticipates flow and
flow anticipates structure

value is where flow builds structure ( for my purposes )
because from structure --> process FLOWS


I can see no benefit in
using a coin toss triggered by a random event
to guide my buy and sells of eg an index fund

No matter how leveraged with OPM

About were you end up if you can never know ( anything worthwhile )

As useless as a weather forecast may be

You would NEVER do some things without one
But the forecast is an ongoing process too...

And it is the relative changes
in the universe of opportunity
That is as important...

Can they be identified prior to the turning point? No, not consistently. Some will do so, and attribute it to skill, method, analysis, etc. I call it luck or random.

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Not so much prior to the turning point
But prior to the next turning point
as I stated

We do not want to buy the tops and sell the bottoms
( though many as revealed by P&V do )

motorway

motorway said:

The problem I think probably lays with this



This possibly is such such a small "set"
as to be statistically insignificant

Hence



I have 197 opportunities on the ASX ( Total market )
to drill down on as of this date

These meet criteria ( at a first blush )
That deal with the italicized text in the quote...

There are two aspects to such criteria

as a mean reverting market cycle signal
as a particular get on & off opportunity cycle
of particulars

This is not predict and set

but more like weather forecasting

Like any energetic phenomena
structure anticipates flow and
flow anticipates structure

value is where flow builds structure ( for my purposes )
because from structure --> process FLOWS


I can see no benefit in
using a coin toss triggered by a random event
to guide my buy and sells of eg an index fund

No matter how leveraged with OPM

About were you end up if you can never know ( anything worthwhile )

As useless as a weather forecast may be

You would NEVER do some things without one
But the forecast is an ongoing process too...

And it is the relative changes
in the universe of opportunity
That is as important...



Not so much prior to the turning point
But prior to the next turning point
as I stated

We do not want to buy the tops and sell the bottoms
( though many as revealed by P&V do )

motorway

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motorway

Probability theory states that the probabilities are calculated by taking the outcome, by the total number of possible outcomes.

Thus in the market what outcomes are possible?

*Up [price rises]
*Down [price falls]
*No change [price stays the same]
*Market closes for period of time
*Market collapses [closes forever]

Most don't really consider the last 3 possibilities, and keep the calculation to the first 2. Therefore 1/2 = 50% probability that you will be right in market direction.

This is where the arguments start. Should biases be included in the computation of the probabilities?

What are biases?

*Technical analysis
*Fundamental analysis
*Government policy
*Behavioural Finance analysis
*Other

This question of course has motivated the quants forever. They take and analyse reams of data in expectation of identifying probabilities that will modify the initial probability.

Let's for arguments sake assume that this is valid. The probability calculated will be a derivative value, thus it's predictive capability is increased or decreased? It alters the probability of the original calculation how?

Of course this train of thought should lead down the road in the contemplation of risk and risk management.

Food for thought.

jog on
duc

With regard to the intra-market indicator of volume that forms the basis of an analysis and changes or modifies the probabilities, consider this:

From John Maudlin

But first, I want to direct the attention of those in the US finance industry to a white paper written by Themis Trading, called "Toxic Equity Trading Order Flow on Wall Street." Basically, they outline why volume and volatility have jumped so much since 2007; and it’s not due to the credit crisis. They estimate that 70% of the volume in today’s markets is from high-frequency program trading. They outline how large brokers and funds can buy and sell a stock for the same price and still make 0.5 cents. Do that a million times a day and the money adds up. Or maybe do it 8 billion times. It requires powerful computers, complicity of the exchanges (because the exchanges get paid a lot), and highly proximate computer connections. Literally, the need for speed is so important that to play this game you have to have your servers physically at the exchange. Across the river in New Jersey is too slow. Forget Texas or California. This is a game played out in microseconds.

The retail world doesn’t get to play. This is a game only for big boys who can afford to pay for the "arms" needed to fight this war. But the rest of us pay for the game, as that half cent is like a tax on transactions, not to mention the increased daily volatility, which skews pricing. Think it doesn’t affect you? That "tax" is paid by mutual funds, your pension fund, and every large institution.

Frankly, this is outrageous. The more I read the madder I got. And it is going to get worse as computers get faster and software more intelligent. We need rules to level the playing field. Themis suggests one simple one: just make it a rule that all bids have to be good for at least one second. That would cure a lot of problems. One lousy second! In a world of microseconds, that is an eternity.

Goldman Sachs went after an employee who stole some of their latest and greatest software this last week. The US assistant attorney general said in the courtroom that the software had the potential to manipulate the market. Imagine that. I am shocked. There is gambling going on in the back room? Gee, commissioner, I had no idea.

All this "algo" (algorithmic) trading also gives a very false impression of volume. If you are a fund and see 10 million shares a day traded, you might feel comfortable that you could hold one million shares and exit your trade easily. But if 80% of the volume is false "algo" trading, that volume isn’t really there. You may have a position that will be a problem if you want to exit, and not know it.

"High-frequency trading strategies have become a stealth tax on retail and institutional investors. While stock prices will probably go where they would have gone anyway, toxic trading takes money from real investors and gives it to the high frequency trader who has the best computer. The exchanges, ECNs and high frequency traders are slowly bleeding investors, causing their transaction costs to rise, and the investors don’t even know it." (Themis Trading)

We are literally talking billions of dollars here. The SEC needs to step in and stop this, and soon. This is a lot more important than the salaries of investment professionals, for which the Obama administration today suggested new rules, which would allow the SEC to oversee salaries at member firms. Seriously? They don’t have enough to do already?

The link to the white paper is

http://www.themistrading.com/articl...ic_Equity_Trading_on_Wall_Street_12-17-08.pdf. Themis Trading is at http://www.themistrading.com/.

jog on
duc

How are transaction costs avoided?

ducati916 said:

motorway
Thus in the market what outcomes are possible?

*Up [price rises]
*Down [price falls]
*No change [price stays the same]
*Market closes for period of time
*Market collapses [closes forever]

Most don't really consider the last 3 possibilities, and keep the calculation to the first 2. Therefore 1/2 = 50% probability that you will be right in market direction.

This is where the arguments start. Should biases be included in the computation of the probabilities?
Food for thought.

jog on
duc

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50/50 with a fair coin

Not 50/50 with a biased coin

It is this bias that matters ( not the bias you are talking about )

The market trends
The moves of the market ( that I what to catch ) are NON random

The Number of up days to down day days are RANDOM in the sense of your 50/50
even in trends ( But the sizes ? Key point here --->The coin is always being flipped but not the same number of times each day/week/month)

Yes Volume can be noise too ... Volume does not = Liquidity

That said --> Absolute anything can be noise
But it is the relative changes that matter more
Small changes produce small Biases

That produce large trends..

If you know the starting point
How far and how much since
The rate of change
You have an idea of how far

And along the way .. how much further still ( stages )..

Far from equilibrium
close to Equilibrium
overshoot Equilibrium

The weather
the spread of ""swine Flue"
Trends in markets
propagation of memes
etc etc..

yes it is all random &
No it is not random

1-There is a starting place
and 2- a finishing place

We don't need ( but it would be nice ) number 2

Also the finish becomes another start
But be careful because there is a fork in the road
And the old travel a different way to the new

S curves ---> Bifurcate


Structure and Flow




motorway

The Prime Mover in a financial market is not value or price, but price differences, not averaging, but arbitraging. People arbitrage between places or time------arbitrage assumes no intrinsic value---simply observation and forecast of a difference in price, and an attempt to profit from it

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---A full understanding --begins with the understanding that The Mean is not Golden

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That (intrinsic) Value has limited value, is slippery and vastly overrated

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So what is Benoit Mandelbrot saying here ( pg249 on--> Misbehaviour of markets )

He is pointing to a value
That we can profit from

A value not so slippery
one defined by High and Low
& Before and After

He suggests that we are all Arbitrageurs ( successful or not )
And it is better that we realize this
Than worry to much about "intrinsic" Value and do nothing..

motorway

tech/a said:

My views on Business Property and in regard to this topic of Trading are I have found more radical than most.

My own view is that a very high ratio of wealth accumulators will operate within their comfort zone---which is a great deal lower than even they expect. Warm and fuzzy is good but you wont see EXCEPTIONAL results.

EXCEPTIONAL results only show themselves when there is EXCEPTIONAL thinking.

(1) We had a 7 yrs bull run and while many took advantage of it many have lost any advantage they had accumulated. Many simply watched!

(2) We had a 7 yr property boom and while many picked up "A" single investment property few took advantage of this EXCEPTIONAL opportunity in an EXCEPTIONAL WAY. Many simply watched

(3) We have seen an EXCEPTIONAL down turn well documented and shifting indexes by 40-50% but few have taken advantage of it. Many simply watched.

(4) We have seen OIL trade from $25 a barrel to $140 a barrel and back to $50 a barrel Many simply watched.

(5) We have seen gold traded from $270 an ounce to $1000 an ounce and many simply watched.

(6) We have seen the AUD trade from 50c to 90c and we pretty well watched.

I too have been one who has watched SOME of those events but those I have taken part in--in an EXCEPTIONAL way have changed my life's direction!

Pyramiding is one of those strategies which can SET YOU UP for EXCEPTIONAL results.

Once risk is understood (Its minimisation and in many cases eradication) it should release everyone from the burden of FEAR.

It is EXCEPTIONAL thinking and implementation which I'd like to see discussed in a practical sense.
Putting yourself.
(1) In front of the train
(2) On the train.
(3) Fueling the train.
(4) Maintaining and or leaving the train.

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With everything happening in the global economy and markets, this post popped into my head. With billions being shed from markets of late,currencies tumbling at incredible rates, interest rates the lowest in recent years, to name a few.

Are we in a position now to take advantage of them as tech/a mentions above (albeit not a 7 year t/f, in the near future)..?

Kryzz said:

With everything happening in the global economy and markets, this post popped into my head. With billions being shed from markets of late,currencies tumbling at incredible rates, interest rates the lowest in recent years, to name a few.

Are we in a position now to take advantage of them as tech/a mentions above (albeit not a 7 year t/f, in the near future)..?

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There are always opportunities...always.

Its just that occasionally there seems to be more than usual and the opportunities stand out more...like now.

But you can only take advantage of them if those opportunities are with in your comfort zone....some people just cant do it :dunno: Gold for example...just buy the significant pull backs over the last 8 years and you have cleaned up, goes for oil to ( i brought an oil stock today ) 160 stocks hit new 12 month lows today..how many will trade higher over the next 3 / 6 and 12 months?

Kryzz said:

Are we in a position now to take advantage of them as tech/a mentions above ..?

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So_Cynical said:

There are always opportunities...always.

Its just that occasionally there seems to be more than usual and the opportunities stand out more...like now.

But you can only take advantage of them if those opportunities are with in your comfort zone....

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I think you have highlighted the escence of forum sharing digging up this great post. Not only is it apt, but it contains pearls of wisdom that will stand the test of time. The posters here are still here as you are, and still willing to help us less contributors in the quest for the holy grail, what is our comfort zone.

Thanks Tech, Motorway, Duc, SC, and all you guys and girls who help to keep us afloat with you're generous offerings