Archive for the ‘Random Order’ category

The 5minute Year

When Mark Twain popularized the saying “lies, damned lies, and statistics”, he must not have thought about it temporally. The statistics of today can seem irrelevant tomorrow. Society found it hard to rely on statistics for future trend forecasting. What will happen tomorrow is hard to judge from statistics of today. Such is the divergence between any two periods of time that calling all statistics a lie might have eased some pressures for policymakers and thinkers juggling with data, trying to make sense of it.

Even today we are struggling with the same challenge. We have so much data and data analytics, but we still can’t see very far in future. EURO is a clear example how limited our ability is to anticipate the future. Leave aside 2 years, even a 12 month outlook is a tall task. What happened? Why is the society skewed to the 5 minutes (shorter time) and why does it find it hard to look ahead into the year and take risks for longer term. Can you buy TCS for 5 years? Or can you sell Reliance for 3 years more?

Technicals, fundamentals and quantitative techniques helped breach the multi month outlook. Behavioral techniques illustrated seasonality in 3 year investing horizon. More than 3 years were for the celebrated money managers. And going into a decade long holding was for the entrepreneur. Few invest a decade of effort into an idea. And guess who tops this list of holding periods. The common man, who does not invest in stock market and assumes (or unaware) that he (she) is insulated from the stock market vagaries, is the one with the longest holding period. He keeps holding, never exits.

You can read the complete article in Business Standard

Mukul Pal, is a Chartered Market Technician, MBA Finance and a member of the reputed Market Technicians Association (MTA). He has more than a decade of Capital Market experience dealing with derivatives and global assets. He has worked for Bombay Stock  Exchange, multinational Banks and brokerage houses in leading research positions before starting on his own in 2005. He is the President of the MTA Central and Eastern European Chapter.


The Vicious Forecast

It took me a long time to learn that instruments and forecasts don’t make money, risk management does. If you are in capital markets, forecasting is paid work, a job, a vocation. Predictions are all over the place. What’s a prediction? Euro will die or Nifty will reach 8,000 or Gold will rise are all predictions. “That new Tom Cruise film will be a hit.” Whenever we say “will”, we attach a 100% probability to the event. A lot of times I ask, “How can you be 100% sure?”

Is there a way to outperform the market and not use a prediction? Well we may not have cured ourselves from the forecasting passion (or vice) yet, but as we move towards systems, the only forecast we would like to do is that performance is cyclical and the worst performers of yesterday become the winners of tomorrow. This phenomenon of reversion is not a prediction or a forecast, but a visible reversion seen in outliers. But then what should we do about our need to forecast or follow our intuitions.

According to Daniel Kahneman, “Following our intuitions is more natural and somehow more pleasant, than acting against them it’s natural to generate overconfident judgments because confidence, as we have seen is determined by the coherence of the best story. However, we are not all rational, and some of us may need the security of distorted estimates to avoid paralysis. If you choose to delude yourself by accepting extreme predictions, however, you will do well to remain aware of your self-indulgence.”

So much we suffer from forecasting that we just can’t leave an opportunity to predict. ..

You can read the complete article in Business Standard

Mukul Pal, is a Chartered Market Technician, MBA Finance and a member of the reputed Market Technicians Association (MTA). He has more than a decade of Capital Market experience dealing with derivatives and global assets. He has worked for Bombay Stock  Exchange, multinational Banks and brokerage houses in leading research positions before starting on his own in 2005. He is the President of the MTA Central and Eastern European Chapter.


The doomed outlier

A friend took me out for coffee and gifted me Gladwell’s outlier at the 2009 bottom. “This is dedicated to your doomed outlier”. During those murky times the negative outliers were moving to positive polarity (worst stocks were becoming potential outperformers). Three years later and many outliers later, Gladwell’s lucid narrative on history of success started shinning bright in my heap of books. It was time for me to read it and explore the connection between price performance and success.

For Gladwell success was being at right time and right place. He connects historical success stories of 150 years to explain how success was not just an act of genius but a series of circumstances that created Gates, Jobs, Rockefellers, Beatles etc. The author goes step by step demystifying the process of success. Starting from IQ surveys which were mapped with success over a decade, the author illustrates how intellect and achievement are far from correlated. How there were more Nobel Prize winners from outside Ivy League.

According to Gladwell, “power distance index,” is a term from cross-cultural psychology describing the hesitancy of subordinates to question superiors. Culture can effect catastrophes and create superstars. He quotes Asian persistence as the reason why Asians are better in mathematics. Uncertainty avoidance i.e. how well a culture tolerates ambiguity is also cited as reasons for poor performance. Coincidently it’s Greece and Portugal that tops the list.

Coming to look at it, what Gladwell suggests is that success is to a certain degree random. If you were born at the right place at the right time and done the right things, you would achieve success. Just doing the right things was not enough, the combination of when and where was magical. The Gladwell opinion is old wine in new bottle. Taleb said it in a different way….

You can read the complete article in Business Standard

Our Jiseki Time cycles are seasonal patterns of strength or weakness in assets. They are derived from percentile rankings from 1 to 100. The higher the percentile more the chance for an asset to weaken and worst the ranking, better the chance for the respective asset to outperform. 100 is top relative performance and 1 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. Jiseki is another name for Performance cycles, time triads and time fractals. The signals are illustrated as a running portfolio and as Jiseki Indices. These signals can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades.

Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.

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Mukul Pal, is a Chartered Market Technician, MBA Finance and a member of the reputed Market Technicians Association (MTA). He has more than a decade of Capital Market experience dealing with derivatives and global assets. He has worked for Bombay Stock  Exchange, multinational Banks and brokerage houses in leading research positions before starting on his own in 2005. He is the President of the MTA Central and Eastern European Chapter.


The Rational Exuberance

 

In the age of information, quotes become books and books become religion, almost. Robert Shiller’s Irrational Exuberance was a voice of caution that appeared in March 2000, before the start of a decade long sequence of negative fluctuations. The book itself was written about economic bubbles and investor psychology.

Shiller’s based his work on his 1981 research paper in the American Economic review, where he showed the divergence between fundamentals and market prices. He took the present value (PV) of dividends paid on S&P composite stock price index discounted by a constant real discount rate for the period (1871-2002). He illustrated that PV behaves remarkably like a stable trend. In contrast, stock price index gyrates, wildly up and down around this trend. Shiller’s contention was that the divergence was much larger than what valuation could explain. Price change was driven by psychology not by fundamentals. He suggested feedback dynamics between human interactions as the explanation for excessive volatility or bubbles.

Who owns the truth?

On one side Shiller and other new age experts highlighted the weakness in the assumption of efficiency, but on the other hand was it correct to swing to total irrationality (inefficiency)? Why could we not give benefit of doubt to earlier thoughts on rationality (normality)? After all there were no tera-bytes of data and real computing power. In hindsight the rationalist argument might have gaps, but how do we think tomorrow would judge the “irrationalists”?

A recent award winning paper by David N. Esch in the Journal of Investment Management addresses the…

This article was written for Business Standard

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Mukul Pal, is a Chartered Market Technician, MBA Finance and a member of the reputed Market Technicians Association (MTA). He has more than a decade of Capital Market experience dealing with derivatives and global assets. He has worked for Bombay Stock  Exchange, multinational Banks and brokerage houses in leading research positions before starting on his own in 2005. He is the President of the MTA Central and Eastern European Chapter.


The Purposeful Time

Romancing Himalayan is a magazine published from Jammu, India by Kashmirink.