aunuwyn08 said:

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First, incorporating new information wouldn't invalidate the accuracy of an algorithm - I didn't make that claim. I claimed that the introduction or elimination of additional parameters would. For instance if my algorithm predicts Y through an analysis of X1 and X2 and I incorporate new observations of X1 or X2 into the algorithm then my algorithm remains unchanged. However, if all of the sudden my algorithm attempts to account for a new variable to explain Y and becomes based upon an analysis of X1 X2 and X3 then the reliability of the algorithm has been compromised as it is fundamentally no longer the same algorithm.

Second, all algorithms are based upon statistical analysis of data and the first law of statistics is no predictive model can approach 100% certainty. We don't have crystal balls, and thus cannot perfectly predict what will happen in the future regardless of data quality, sample size, and methodological sophistication.

The real value of a market predictive algorithm is not in telling me that the markets are trending up on average during a bull market and down during a bear market, but when those trends will flip - and more importantly what specifically is causing the reversal. There are no models that have been able to do this because no two major market reversals happen in the exact same way. Sure some algorithms get it right sometimes, and others other times, but not one gets it right ALL the time. An algorithm like you are describing seemingly can predict "black swans."

Now if there are algorithms that you know of which do please post them as well as their underlying data so that we may all independently evaluate them and hopefully grow predictably rich. I admit that I am not a finance guru, but a mere statistician so there may be some new technique I am not aware of.

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SoupNazi2001 said:

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SlackerAg said:

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I think 2018 could burst the underfunded pension bubble & rattle the markets:

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Local governments often give retired police officers, firefighters, teachers, and other workers a pension plus healthcare benefits... Starting in 2018, the Governmental Accounting Standards Boardthe source of generally accepted accounting principles (GAAP) for state and local governmentswill force officials to record healthcare liabilities on their balance sheets.

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Why the Pension Storm Will Finally Come to Light in 2018

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Pensions are doing the same as seniors, can't get any yield right now so they are ratcheting up their equity exposures.

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canagian said:

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some great quotes:

• "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."
• "I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it."
• "In the financial markets, hindsight is forever 20/20, but foresight is legally blind. And thus, for most investors, market timing is a practical and emotional impossibility."
• "The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly fifty years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently. Yet market timing appears to be increasingly embraced by mutual fund investors and the professional managers of fund portfolios alike."

and finally:

• "The average investor's return is significantly lower than market indices due primarily to market timing."

but of course everyone on here is an above-average investor...

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exp said:

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claym711 said:

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You're simply reciting misnomers based on anecdotal experience as if it were fact. Timing and predicting the market is possible and occurs every single day. Generating 60-80% ROI/yr on AUM is possible and is occurring, and at a sustained rate.

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People gamble and win in Vegas every day too. The existence of winners (and losers) is a statistical certainty but does nothing to further your argument that their underlying strategy is sound. If a million hedge funds Implement a million different market timing algorithms, probably half will beat the market in a given year. Some will beat it soundly. An equivalent number will underperform equally and you'll never hear about it. About half of these guys will repeat the feat in year two.

My point is that saying "market timing is possible and is happening successfully every day" is not a valid argument for the statistical viability of trying to time the market. It's just evidence of the statistical certainty I will lovingly refer to as "blind luck".

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aunuwyn08 said:

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Look, I'm obviously not going to persuade you or others that think like you on this topic even though I know a lot about sophisticated statistical modeling because I do it on a daily basis since I am a statistician.

Two points though, first misnomer means something is mislabeled - misconception is the correct word you are looking for. Second, you can accuse me of just using anecdotal evidence, but that is just "the pot calling the kettle black" because you have only provided anecdotal claims to make your point as well. I asked for a model with data to demonstrate it and you didn't provide one. On the other hand I linked everyone a story from a respected economic modeler making the exact same argument that I do, and I could provide a lot more technical studies affirming this point.

Frankly, I really hope to convince some of you here not to take supposed market performance claims at their word just because they are based on technical analysis or quantitative models. There is a large degree of selection bias present in discussing correct market predictions - you're very unlikely to hear from the people who model and get it wrong but will always hear from the people who happen to be right. However, even these people will eventually be wrong, but on average quantitative modeling gives them an information advantage that will outperform the median investor. 99.999% of these firms and models will also woefully fail to predict the next major downturn or crash, and they will lose just like everyone else will. The easiest thing to predict in the market is whether or not the market will be up or down at the end of the day - most models can only do this at a 60-70% clip.

So why might this be the case? In contrast to everything you have learned in business or some economics courses the market is fundamentally not rational because people are not rational. The human element is interwoven into market performance, and human behavior is impossible to predict. If you would like some really interesting examples of this to read up on the electoral timing and economic policy literature. Here is a link to a pretty good summary article of that body of work. https://experts.umich.edu/en/publications/electoral-and-partisan-cycles-in-economic-policies-and-outcomes

There is also a great trove of information in psychology, economics, and political psychology about how biological limitations to human cognitive function alter decision-making beyond the traditional homo economicus representation of the markets. This book provides an excellent summary of that information. https://www.amazon.com/Rationalizing-Cambridge-Studies-Political-Psychology/dp/052117614X/ref=sr_1_1?ie=UTF8&qid=1508506622&sr=8-1&keywords=the+rationalizing+voter

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aunuwyn08 said:

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Both actually.

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aunuwyn08 said:

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Cognitive, economic, political, and social research shows that individuals do not act perfectly rational, no.

At best, some people act boundedly rational in certain contexts, but then act irrationally in other situations.

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aunuwyn08 said:

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I'm using the phrase perfectly rational to distinguish semi rational from completely rational behavior. If you want to amend my comment above replace "not rational" with not perfectly rational. .

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Even if humans act rationally in 90% of circumstances all the time it still results in the issues I raised. I'm just trying to be precise about what I am saying, and am speaking with my researcher hat on

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