Bear's Portfolio at the end of January 2017

One way to trade with the algos is to watch volume. The Najarian’s make a living of tracking option volumes. Whatever the machines do they still have to buy and sell like the rest of us. I believe often volume proceeds price movement. Tracking that metric can be of help in sussing out stock moves. Just another tool to consider.

Rob

150 years you traded stocks with other humans and exploited your advantage over them. i have no idea how to trade in a world dominated by intelligent machines with ready access to all relevant information.

“Investing” is still a game whereby you try to predict the future better than everyone else. I have no idea if AI will do a better job predicting company success than humans, but it’s certainly not there yet. Just look at the recent election predictions.

Here’s an interesting article from mid 2014: http://www.forbes.com/sites/greatspeculations/2014/06/20/ten…

It calls out CMG and UA as great companies, but overvalued. But, don’t get too excited: Facebook was also on that list, and it’s done really well.

I watched a documentary on Warren Buffet the other night. We all know one of his famous quotes: It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. But, what he says in the film is that it was Charlie Munger who convinced him to change from buying fair companies at wonderful prices to buying wonderful companies at fair prices - and that if it wasn’t for Charlie, Buffett didn’t believe he’d have been able to scale as he has. And indeed, if you look at Buffett’s early investments, there were mostly not wonderful companies. Heck, just look at the one whose name he built around: Berkshire Hathaway.

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there may be ways to beat the intelligent machine. i really hope so. however, it will be a paradigm shift. you will no longer find a “trick” that works for 30 years straight. the minute you figure something out, so will the machine and it will react by changing the game. your trick will cease to work.

out-sized gains will require incredible agility and adaptability. the game has fundamentally changed. this runs against a basic axiom here that says 'let’s figure out how Saul did it 20 years ago and then we will do the same over and over…"

#6

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The above argument that machines will make all of the money assumes this is a zero sum game. Everyone who invests in a company, including machines and us, can make money when the company does well. Options may be a different story.

Of course, the machines are likely making money for the humans who built them, but that is not my point.

Take care,
A.J.

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The stock market is two concurrent games:

Investing = non zero sum game
Trading = zero sum game

Trading can enhance or ruin your investing.

Denny Schlesinger

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I think the machines are all directed at short term trading … day trader country on steroids. That is a realm where it is very understandable that an algorithm can gain predictive advantage over those short term movements.

I don’t know that anyone is even trying to model long term and pretending to do it with any success. For all of the proposed schemes, we certainly haven’t seen anything with lasting accuracy.

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At this point in time I believe AI is only able to establish correlation and statistical probabilities . Not cause and effect. And Big Data on stocks means large amounts of the data will be BS or incorrect. One only has to look at stocks like TSLA to realize much of what is written is actually untrue. Or nonsensical. Like customer preferences for BEV vs ICE . Since few customers have ever driven a BEV it is like asking people who have never drunk a cola drink whether they prefer Coke or Pepsi. But the AI will take their choice seriously.

So I think AI will only level the playing ground short term. The Apple example above is only one of many. Computers will think hula hoops are going to be big sellers. Which they were until they were’t.

I suspect AI will hit many elite occupations before it hits stock picking. I would look more toward picking bull and bear markets or sector rotation. Because if you can do that you don’t need stock picking.

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Someone stated earlier how 1 month was too short of time to consistently try to beat the average. How about 20 minutes or a few milliseconds? Computer trading is getting smarter and smarter every year.

It’s called the Arizona Financial Text system, or AZFinText, and it works by ingesting large quantities of financial news stories (in initial tests, from Yahoo Finance) along with minute-by-minute stock price data, and then using the former to figure out how to predict the latter. Then it buys, or shorts, every stock it believes will move more than 1% of its current price in the next 20 minutes - and it never holds a stock for longer.

https://www.technologyreview.com/s/419341/ai-that-picks-stoc…

That was 7 years ago. I’m sure it is exponentially more complex and faster by now. Just like the lack of information was a factor 20 years ago for incorrect pricing, maybe Fake News will be the current driver for incorrect prices these days. More and more of the financial news is even being authored by the machines.

In normal English, HFT makes use of extremely advanced computer algorithms to trade securities much faster than humans, moving in and out of positions in a matter of milliseconds (10-3 seconds).

http://bnrbeurs.nl/2017/01/20/algorithmic-trading-the-millis…

That was published 12 days ago. ----MILLISECONDS!

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HDP - I couldn’t resist after Saul explained the need to look at “revenue plus the net change in deferred revenues”

This is my pet peeve. Counting revenue PLUS deferred revenues is double counting. To begin with this company is valued only based on growing revenue and not on profits.

Not that anyone cares, the velocity of revenue increase is matched by the velocity of losses and losses are more than revenue.

So I would be careful about these kind of double counting.

To me the only exit for HDP shareholders in the next 1 to 3 years is someone buying them out. I am not seeing a scenario where the company can be meaningfully profitable. Personally I would not allocate more than a tiny position. But then this board is filled with investors whose valuation metric is very different and has enjoyed success with it.

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