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THE MOST COMMON ERROR IN STOCK MARKET RESEARCH

Jeff Miller of Dash of Insight wrote a brilliant post on common research mistakes. It can be found here.

He breaks it down into two things:  Selecting the Right Data and Comparison.

Selecting the Right Data.  As the saying goes, if you torture the data for long enough it will tell you anything.  There is so much data out there that you can make it say whatever you want.  The most important thing about finding the right data is accepting the limitations of it and understanding it.  Look at this way, I like a fast car but insurance and gas will cost more. Does that justify the tradeoffs for me?  Yes.  You?  Maybe.  All data is local.

Comparison.  Mr. Miller calls is comparison but I prefer the word context.  Most anyone can look at a data or chart and come to a reasonable outcome.  Data records it does not tell the story.  It can can tell a story but for the most part they are without context.  Yes you can throw a couple more pieces of data in and get closer but who knows.  Think about how ridiculous it would sound if I showed you a picture from 1950′s Chicago and asked you what it was like.

What Mr. Miller didn’t mention, probably because of time or my inabilities, is that data is secondary to what we do with it.  For the most part we are untrained at using it.  We are 14 year olds at the Playboy mansions. We get data F@#%&ed, data blocked, data complacent or whatever you want to call it.

Mark Cuban Calls the Stock Market a “Platform for Hackers”

The following article from yesterday’s Wall Street Journal is a great follow up to my post from yesterday, Computers on Wall Street are Buying and Selling to Themselves!.  Mark Cuban, who wrote software himself, may have a bit more knowledge on the matter than some D.C. prostitute regulator, so I am sure they have contacted him to get his thoughts on the matter.  As I have said for years now, when the public loses all faith in their “leaders”(corporate and political), they lose faith in the system itself.  No economy can ever dynamically grow and increase standards of living absent a belief in the rule of law.  This is precisely why the U.S. will never be a strong, vibrant and upstanding society again until we take out our own trash, rather than pointing fingers abroad and blasting drones at civilians from 10,000 feet.

Key quotes from Mark Cuban on the computer dominated stock market:

I came to realize that the stock market no longer knew what business it was in. I wrote a blog that basically said that the markets for equities of all kinds had evolved to a platform for hackers.

As far as narrowing spreads, that’s absolutely true, but in absolute terms what does it translate into? For the individual investor it might save them a quarter a month. So what? Relative to the risk that’s the worst tradeoff in the history of tradeoffs (more…)

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