Statistics - Signal versus Noise

Prediction is very difficult, especially about the future.
-- Niels Bohr


Just happen to be reading both The Signal and The Noise by Nate Silver and The Only Three Questions That Still Count by Ken Fisher and find the overlap on statistics quite serendipitous.

From Baseball to Investing to Earthquakes and TED Talks, statistics can be used as an effective tool to uncover the elusive.

Nate Silver, Ken Fisher and Sebastian Wernicke all use the science of learning from data with great success.  Nate Silver began his journey into data analysis as a young baseball fan.  Ken Fisher wanted to find out what no other investors knew.  And Sebastian Wernicke wanted the perfect TED Talk.

Twitter: @_wernicke @fivethirtyeight @fisherinvest

Behavioral Finance

Ken Fisher's book "The Only Three Questions that Still Count" discusses the behavioral aspects to finance.  Just as a Navy Seal needs to master fear in the extreme, investors have their own fear triggers to tame.

The Brain's Limbic System is responsible for the processing of emotions like fear and greed.  The amygdala is part of the old brain and central to emotional control.  The Cortex is the new logical brain, however it receives fear signals twice as slowly as the amygdala.  Controlling the amygdala is key to controlling emotions.

The Navy Seals take this Limbic training to the limits.  The techniques for dealing with fear are considered by Lieutenant Commander Eric Potterat as the Big Four:

1. Goal Setting - small steps itemized in advance
2. Mental Rehearsal - repeat a physical drill in the mind
3. Self Talk - 300-1,000 WPM on average (positive)
4. Arousal Control - breathing techniques, relax, focus

Behavioral Finance can take a page from this book.  Step one is the reason traders like Douglas Busch @chartmaster write out their Complete Game Plan on a daily basis.  

Fear and Greed in Finance Markets: A Clinical Study of Day Traders takes a scientific approach to researching the reactions of day trading on the brain.  Whole organizations are dedicated to the neuroscience of market psychology, companies like Market Sych LLC and publications such as The Journal Of Behavioral Finance.  Even Freakonomics is looks at the topic in an interview with MIT professor Andrew Lo.  TIME magazine list Professor Lo in The World's 100 Most Influential People.

@fisherinvest @MITSloan @chartsmarter

3D Printing

3D Printing -- Star Trek, right.  Nope, more like Plastic soft serve ice cream.

Howard Lindzon was discussing companies like 3D Systems Corp on StockTwits.  Check out how well the stock (DDD) is doing since the beginning of 2012 where it was trading for $14 a share.  Now in the $45 range the multiple is fairly high.

Scott Hanselman interviewed Bill Steele about his 3D printer called the Ultra-Bot based on the original MakerBot CupCake.

Venture Capitalist in the 3D Printing arena:

Fred Wilson
Brad Feld

Open Source 3D Printing movement with RepRap

Investment Resources

Best Starting Point:	FinViz	Wonderful site for charts, analysis and news – start here.
Pre-Market:	CNN Money	On your marks, get set…CNN Money has the premarket data and StockTwits feed.
Online Portfolio:	Marketocracy	Compare your portfolio to the great masses.
Option Pricing:	iVolatility	Online Black-Scholes calculator for option pricing
Community:	StockTwits	Twitter for stocks
	Seeking Alpha	Opinions and commentary from a wide range of views.

May Money Matters

5/2/2011 - Silver is high and volatile.  SLV dropped hard today.  Cummins (CMI) and Caterpillar (CAT) Millicom (MICC) may be done rising.  Cliffs (CLF) is heading down.  Crown Castle continues its drop back to support.  PPH the Pharm index is nonstop up and definately needs a breather -- either stop out or hedge with a PUT.  Same for Merck (MRK) only it is about done filling the gap.  ABX is heading down again, however it never saw the highs of the other gold issues, an interesting factor is the high amount of volume.

5/18/2011 - The SLV PUT worked out well.  Exiting the trade early didn't full capture the move, but who expected such a dramatic fall for the shiny metal. 

Showers Market

4/7/2011 - Markets moving up.

4/12/2011 - Markets correcting downward.  JDSU and MSFT down, while NFLX looks to be done pulling back.  NVLS has been smacked back a few times, but still has upward quarterly MA.  The stock at 34 is 18% off the recent high.  SYK at 60, CAM at 53, and GLW at 19 look oversold.

While CTRP at 44 may be overbought.  EXPE filled the drop gap and may be done rising for a while.

4/13/2011 - Stocks which may hedge against a toppy market - ARM at 19.5, MWW near 17, RSH filling the gap at 17.

4/ 15/2011 - What is going up in a down market?  EIX, FE, PPL (Electric Utilities), CMA (Banks), VMW (System Software), COH (Apparel)

4/23/2011 - Between Good Friday (which was) and Easter Sunday it is time to reevaluate the market direction.  On a quarterly basis, the overall market is on an uptrend with the QQQQ, DIA, IWM, IWB, and SPY.  The QQQQ is a bit weak with the index falling below its quarterly moving average and the average looking to roll over.  Only in the last week has that trend broken.  The DIA is the only index breaking new highs, so far.

BDX and JNJ are nice PUTs for downside protection.

4/25/2011 Silver is up huge.  Perhaps ready for a break.  Watch SLV.

4/28/2011 Ben speaks, precious metals move up.  Humm.  NTAP, PCG, MHS, and WMT look set to pullback.  On the other side NE, ROK, ABX, NFLX, and CMG could bounce.

Market in Spring

3/21/2011 - Recent options in MSFT, CAT, CLF, XLE and XLB have performed well, yet the market seems perilous and vulnerable.  The above call options did indeed do well over the last few days, but the rise has been on low volume.  CAT, XLE and XLB (basic materials) seem poised to do well in the current climate of energy scares and natural disaster rebuilding.  MSFT on the other hand has simply been beaten down to the point of exhaustion.  Todays bounce was nice, but it gave a good chunk back before the day's end.  And the volume was lack luster.

3/24/2011 - The market has been moving up since a week ago Thursday.  The question is is this a fools rally.  Gains in CAT, CLF, XLE and XLB may travel, however the Dow Jones is showing a weak pattern.  The average hit its high on February 18th and has twice tried to rally back with each high less remarkable.  Over the last week the volume has been trailing off while the average increases.

SBUX has been all over the place with spikes, drops and more spikes.   The oil holder OIH gapped down on the 9th and has now filled that gap on decreasing volume.  Although, it looks like it might be an expensive summer for gas.  Individual oils pulled back early in the month and now are on the rally.  COP looking to recapture the highs.  CVX bounding off the 100 mark for a break to new highs.  The industrial spider XLI appears to have broken the down trend.  Gold is also on the rise, interestingly enough.    Brazil (EWZ) is trying to turn it around.

3/27/2011 - ADTN has pulled back from a tear and may have found support.  The Dow is looking strong, but the broader market isn't as powerful after the Japan earthquake.  Compare the three ETFs -- DIA strong, SPY okay and QQQ timid (renamed from QQQQ).

Pullbacks: RVBD, AMP, JDSU, and ADBE

Commodities

The latest round of Mideast revolts seem to be influenced by record high food prices.  The FAO has the data on its site.

World Food Index

http://www.fao.org/worldfoodsituation/wfs-home/en/

Market Talk

Terminology index for the market:

http://www.investopedia.com/terms/l/limitup.asp