Owner: Days Of A Neophyte Mathematician URL:http://rocko.co.nr/ Join Date: Tue, 26 Feb 2008 04:16:13 -0600 Rating:0 Site Description: A look at life via unconventional and mathematically inclined wisdom. Site statistics:Click here
Thousands In New Zealand Lose Investments & Homes 2008-03-09 00:45:36 Recently in New Zealand
thousands of real estate investors took heavy losses from unscrupulous marketing of an intermediary firm Blue Chip. The NZ Herald mentioned that many of these people have lost the invested estate and their personal homes as well due to collateralized mortgage failures. Families and spirits broken, they will remember this lesson in the ages to come.The ongoing travesty began to unfold a few weeks ago as realistic questions rose regarding actual bidding prices of residential properties peddled. Brokerage firms like Blue Chip rely on heavy price discrepancies to make a profit. In other words they must convince buyers to fork over prices well over what the firm believes is liquid (i.e. where many buyers exist), and vice versa with the sellers; the surplus becomes broker Read more:Investments
, Homes
, New Zealand
The Myth of Diversification 2008-03-08 22:36:25 “You want to reduce your portfolio risk. Diversify, diversify, diversify…” I remember hearing some stock broker ranting on TV a decade ago, as the bear market hit US in 98 along with the collapse of Long Term Capital Investments. The audience at the studio watched her intently, the pain of recent losses still apparent on their faces. They all wanted desperately a way out of the hole, and turned to this supposedly professional for advice. She kept going with the metaphors of eggs and baskets, how risk is bad... Just exactly how and why, she did not bother mentioning. The concept never made sense to me even before any exposure to the financial markets. You buy a stock, then you buy some more because you hope they will move against each other, does that not simply lead to low potential Read more:Diversification
Order Out Of Chaos 2008-03-07 16:36:13 Certainty does not exist in this world. Yes it feels nice to assume so, but it simply is not there. People like the idea of having stability like that of a job, as it provides a sense of certainty with every paycheck. They have however ignored the fact that vocational demand relies heavily on performance of employers; i.e. they put their lives at the mercy of the local economies. Conventional “wisdom” then pushes the idea of luck determining winners from losers of life, mathematicians beg to differ. Most individual events occur with arbitrary outcomes; collectively, respectable forecasts have become possible. E.g. it is unfeasible to predict how long it takes an individual atomic nucleus to lose energy, or experience “radioactive decay”. But studied collectively, the h Read more:Order
, Chaos
Subtleties Of Charisma 2008-03-06 13:22:19 Charisma is something I had never learned from school. Experience however, presents it a crucial part of successful business. Most fundamentally speaking, to make a profit, somebody out there must stand willing to risk their hard earned capital for your product or service in return. More trust and confidence become necessary along with transaction values for them to work out. In the case of a trader of financial securities, the relationship with associated broker(s) could determine the level of discounts on commissions and possibly better order fills. Having personable character helps, every little bit counts. It becomes the distinguishing quality between an amateur and a professional. More often than not, the client may not find your product/service particularly fascinating, but they dec
Don't Follow The Trend 2008-03-06 13:22:05 The trend is not my friend. With every business industry, the leaders take the biggest cut out of the particular markets and the “followers” share the left over. This phenomenon provides a picture of current business culture, where the winning players set the trend, and a whole lot of losers work desperately to survive. I have had two failed businesses before learning this valuable lesson. The world of economics does not operate in the manner of scientific laws in terms of cause and effect. Every market of a specific product or service holds a very limited amount of payoff for each player, and the business cycle commences as the first player enters the game. Soon after, additional players enter hoping to eat up the remaining piece of the pie, where the trend becomes apparent.
Gullibility Of The Educated 2008-03-06 13:21:38 Individuals educated in the scientific methods deviate from the crowd in thought process toward life’s problems and solutions in general. By means higher knowledge, logic plays a more significant role instead of emotions. Having spent years of studying mathematics, chemistry, physics, along with sociology, literature, etc., we understand more of the universe compared to the layman. Yet it still does not offer complete control over emotions. As result, we end up with mounting pride over time. The above makes us vulnerable to a particular scheme of influence. Those in the sales industry coin it “the way to fool smart people...” (Paraphrased), and they attempt it on educated folks like you and me every single day. Big, technical jargons. The so-called sales experts deman Read more:Educated
Statistical Expectancy 2008-03-06 13:18:14 The world does not run on absolute certainty, yet the strategic decisions we choose affects future outcomes somehow. The irony seems amplified with those who understand little toward statistical expectancy. Having adequate grasp of this subject makes a more informed investor for any business or personal desires. The concept is simple. E = Expectancy P(w)= Probability of winners S(w)= Average winner Size P(l)= Probability of losers S(l)= Average loser size E = [P(w)*S(w)]–[P(l)S(l)] E.g. let’s look at New Zealand finance companies. They pledge to provide retail investors a slightly above the government bond interest rate as long as their own investments do not experience corrections or draw-downs. Historically speaking, credit markets have a positive correlation to t Read more:Statistical
Birthday Paradox And Risk Evaluation 2008-03-05 11:41:36 Take any random pair of people and the probability of them having the exact same birthday sits at (1/365)≈0.0027 or roughly 0.27%. The chance of it seems so low that many would ignore and assume it never occurring. The BirthdayParadox
however makes available mathematical means to display that the “improbable” occurs quite more often than general belief. How many people does it take to have over 50% chance of a pair sharing the same birthday? 23 Explanation, please keep in mind this example ignores leap years. 1) With 23 people 253 possible pairs exist. 23*22/2=253 (Look up Permutations if you don’t understand this) 2) Now instead of finding the chance of two people having the same birthday, let us find the probability of them having DIFFERENT birthdays. Read more:Evaluation
Hedge Trimming, (Hedge Fund) Article Abstract 2008-02-29 17:32:19 This is an abstract off the article concerning the state of the American hedge fund industry, HedgeTrimming
from The New Yorker. found the article very informative, and decided to do a review of it here for those who do not have the time or easy access to that issue of the magazine. John Cassidy enlightens the casual New Yorker audience with a review of the hedge fund industry. The story entails a former London banker, Harry Kat, who stumbled into the field while pursuing an academic life. What he had observed did not leave much of a morally respectable notion. Privately owned, typical hedge funds operate as financial companies. They generally raise capital off moderately affluent clients, ranging from charitable groups to individuals of high net worth. The business model centers on Read more:Article
, Abstract
, Hedge Fund
Stock Market Downside Bets 2008-02-29 15:49:00 As mentioned in “Prisoner’s Dilemma” I posted a while ago, most efficient teamwork requires absolute faith and discipline from every player. Conflict between individual and collective payoff exists in continuous time. On top of all this, majority of people do not act rationally. It then makes sense that most business type games do not operate in the most efficient manner where maximum potential payoff could occur. The next logical suggestion sets forth that the average multi-staff business has a higher probability toward failure than success. OK, the question lies in how we can exploit this for profit. Most simply, downside bets on the stock markets. Allow me to illustrate why and how it is done. An economist visited AUT early 2007 and lectured regarding corporate crisis ma Read more:Stock
, Market
, Downside
, Stock Market
Impossibility Revisited. 2008-02-29 13:46:19 My great grand father lost a fortune in the Hong Kong stock market early in the century, prejudiced by the American economic “slow down” of 1929. Both dad and grandpa used to repeat that story, warning me to stay far from stock trading. They and majority of the population believe resolutely that generating consistent returns trading financial instruments presents impossibility. What about Warren Buffet? He made his first few million dollars decades ago trading the stock markets via arbitrage and directional tactics. James Altucher wrote a book describing Buffet’s exact strategies in “Trade Like Warren Buffet”. Ever heard of Dan Zanger? Look him up. He turned $10K into $18Million within 18 months, short-term trading stocks. Buffet, Zanger, and guys like George Soros are Read more:Revisited
Arbitrage Themed Business Models 2008-02-29 13:42:43 “Well it takes too much money and risk to make money on your own…” Ever heard of that? Why did you ever assume it true? Classical arbitrage proves it completely false; it puts forth an operation that is both “self financing” and risk free. Seasoned businessmen and traders of financial instruments understand the concept and they apply it all the time. So how do you pull it off? Why does nobody discuss it openly? When it comes down to it, core business models of many SUCCESSFUL enterprises rely on arbitrage themed strategies. These guys play the game to win, and they do it by lowering risk dramatically compared to competitors and keeping it undisclosed. For example: Decades ago when China first opened its doors to the west, the first western importers made fortunes Read more:Business
, Arbitrage
, Business Models
Coffee House Competition 2008-02-28 20:57:47 I live in Remuera district, sort of the upper eastside of Auckland. Every few days I walk through the strip of shops to see friends; it appears that coffee shops have filled the streets. The Remuera Shopping Center basically consists of two blocks of retailers, neck to neck, and I have counted seven coffee based beverage establishments cramped in this space.As they all operate coffee machines and rental spaces of equivalent caliber, they basically belong in a fair non-cooperative game. The same beverages are available in every one, most notably the “Short/Long Black” for Single/Double Espresso, and “Flat White” for Latte.Did they all simply ignore the little issue of competition? Allow me to break this down into simple figures. With seven of them running simultaneously, any individ Read more:Coffee
, House
, Coffee House
Accumulation of Wealth 2008-02-28 14:39:42 What does it take to become wealthy? What does one need to feel wealthy? Encarta Dictionary suggests a characterization of abundance, “enjoying an abundance or great quantity of something”. The next logical question lies in how one would define the term “abundance”. Is it more objectively adaptable or subjectively determined? Some would describe abundance in the manner of possessing an “endless supply of money”. With the way reserve banks keep creating money supply, the illusion of a bottomless money filled pit becomes easily accepted. Notwithstanding acts of reserve banks, every single individual holds a discrete finite amount of monetary value. In other words, nobody carries “∞” for net worth. We can conclude that all of us play the same game. Roughly 98 Read more:Accumulation
, Wealth
5 Tactics Of Sales/Con Pitches 2008-02-27 18:55:17 Well performing sales people claim the ability of selling "ice to Eskimos"; i.e. they expect you to give them money for useless crap via their beguiling manners. By understanding their underlying strategies, we can break the spell and avoid becoming "suckers" whether it be typical consumers or con-artist victims.A typical Sales
Pitch contains 5 major emphasis' 1) Hope CreationAn investment adviser once said "Even Warren Buffet buys and holds for the long term..." implying that you could become as wealthy as Buffet if you only invested through this particular adviser's recommended funds.Logically speaking, turning a few thousand dollars into several billion within a few decades, making 10-20% in the bullish years and losing 30-50% in bearish periods, presents a mathematical impossibility. I Read more:Pitches
Work, Happiness, Game of Life 2008-02-27 18:54:02 As far as I can remember, school counselors had always said something along the lines of “Get a job you love, and you’ll never work for a day.” The worn out axiom suggests that my life long purpose lies in a pursuit for some “lovable” repetitive task. Does that make sense? I love my family, close friends, and olive oil (more on that later); yet to this date no tedious process has kept my passion. I want happiness out of life. Nothing short of it would do. According to CNN, it has been quantified since 2003 () The formula, Happiness = P + 5E + 3H P = Personal Characteristics (optimism, adaptability, resilience) E = Existence (health, social life, financial wealth) H = Higher Order (self-esteem, expectations, ambitions) Given the variables, happiness become
Real Estate Broker, Issues. 2008-02-24 23:40:49 A short while ago I met with a broker who works with Australian rural properties. The man talked nonstop for an hour, and showed some charts of historical performance. There I sat, fingers steepled, running the numbers through my head. A few issues became apparent quickly. The charts displayed growth in these property values for the past few decades without much volatility, on their own."You just showed me how I could have made all that profit without your firm. What additional value do YOU offer? Or am I simply looking at some additional risk to cover your costs?" His eyes bulged, his tie seemed to choke, as he struggled to respond with some substance.Then I inquired how he was so sure the market would continue to climb in the near term future. He pointed to the performance charts, and I Read more:Estate
, Broker
, Issues
, Real Estate
Roulette Theory 2008-02-23 22:58:43 This subject has interested me for a while, mainly due to the fact that mathematically speaking, I believe the possibility of a strategy to obtain a slight statistical edge to the player exists. Well, without further or do, here goes.The graph displays bets available for European roulette, which has a slightly lower edge for the house with the single 0, where American roulette contains a 0 and a 00.Let us focus on the 3rd's, i.e. boxes where you can bet on "1st-12","2nd-12", and "3rd-12".The probability of each spin landing in one of the 3rd's is 12/37, or 0.3243~ (32.43%), and 0.027~ (2.7%) for the 0 to get hit.What this means, is that over in the long run, roughly out of every 100 spins, each 3rd would expect to get hit roughly 32 times, and the 0 roughly 3 times.Now the payoff. With res Read more:Theory
Prisoner's Dilemma 2008-02-23 19:44:51 An interesting game of the following scenario-You have two people in jail, awaiting do process. You know they're guilty of some awful crime, but you have no concrete evidence. If they cooperate with each other and both deny the crime, they would get away with a fine, a slap on the wrist. Now, you separate them and inform each that if he/she confesses and the other doesn't, he/she would get off completely; and if they both confess, they'd get a more lenient jail sentence. Player1 / Player2 2.Cooperates 2.Confesses 1.Cooperates (2 , 2) (0 , 3) 1.Confesses (3 , 0) (1 , 1) The table displays potential payoffs with respect to player 1 and 2. Each prisoner or player in this game must estimate the strategy of th Read more:Prisoner
Saturday, pouring 2008-02-22 13:36:09 7:54AM, I am up. Close to 2PM in New York, the American stock markets have declined for the day. My patience wears thin, the plan adheres to the markets rallying some more with the coming interest rate cut before I initiate the downside bets.Where are the suckers initiating them buy orders? Perhaps they await Bernie's next rate cut, too. With the coming further credit write downs and the negative non-borrowed reserves at American banks, I will enjoy this ride down.Anyway, I look forward to visiting the farmer's market with Don and Agnes in a few hours. Hopefully they will have some real bargains available on meats and bread.My body could use more food, the soreness on my shoulders and upper back have intensified since yesterday. I do push ups and pull ups while bored, and lately boredom s Read more:Saturday
ING Freezes Withdrawals In Two Funds, INDEFINITELY 2008-03-12 17:32:35 This is just wrong, investors punished for mistakes of the management team. ING, one of the larger fund management firms based in Australia has frozen all withdrawals from 2 of their credit instrument based funds. The reason given, lack of liquidity. Lack liquidity, that just means ING has had a hard time selling the damn things off to others at adequate prices. The supposedly highly qualified fund managers at ING had made decisions on the trades/investments knowingly. They even had the balls to claim the 2 involved funds as "low risk", when they had absolutely no clue how these instruments would perform in a bearish environment. Irresponsible and clueless, with the early warnings last July, ING could have adapted much more conservative strategies to prevent this dire stage. Having associa Read more:Funds
Will update this every other day for a while 2008-03-11 01:12:43 Thank you all for reading my articles. Just to keep you in the loop, I recently obtained several writing contracts and they will occupy quite a bit of time. With this, I plan to update this blog every
other day from this point. If you email me, I will still respond ASAP! (it's in my profile)-Rocko
Irrationality The Key To Crowd Mentality 2008-03-10 15:53:12 All men are fallible. As hard as we try, nothing in this world operates at 100% efficiency. The mind drains as the body exhausts, and decision processes begin to slip. One of debatable issues within game theory contends with the notion that games could end deterministically, given that players take rational courses of action. Here lies the problem. No man or woman can realistically make every single choice at optimal rationality.Does that mean everybody has gone nuts? Madness remains a subjective term, most of the time I think. The answers may sit along deviations of standpoints regarding payoff measures. The differences in material, emotional, or spiritual desires help make the individuality culture embraced today. Trying to quantify “estimated” (in other words guessed) potential payo Read more:Mentality
How Safe Is Your Bank? 2008-03-10 00:49:52 Ben Bernanke, chairman (or God as referred in the finance industry) of the American Federal Reserve expects a number of banks to fail within the next few years. These banks hold YOUR money. What seems unthinkable has become quite probable with the unfolding of the credit debacle. The mainstream media has downplayed this issue with subtleness while those in the know have become quite disconcerted.Everyone has the right to become informed, and I want to bring you up to speed. Within the last decade, lobbyists had worked Washington meticulously and succeeded in blurring the line between commercial and investment banks. Long story short, commercial banks had begun to sell debt as investment vehicles along with insurance in the form of Credit Default Swaps or CDS.The problem here lies in the mi
Position Sizing and Risk Management 2008-03-14 15:01:04 With the recent horribly tragic events of real estate and debt instrument investment experiences, some public information on risk management deserves attention. Position sizing deals with the portion of total asset exposed to risk/reward.Putting it all on the line or "betting the ranch" tends to carry exceptionally high risks of ruin, since it leads to large losses as soon as the underlying event goes south. It would make more sense to allow many different "bets", all with positive statistical expectancies, to occur at once. As the law of large numbers kicks in, a positive return will eventually follow. Luck determines the speed of it.Quick example-Basic trend following stock investment strategies carry approximately 33% winning rate on average. (Many still come out profitable after long s Read more:Sizing
, Management
Another Try At Fiction Series 2008-03-13 18:51:21 I had begun a fiction series a while ago, loosedly based on old friends' personalities. It had stopped due to mainly bad time management on my end. As of this week, I have launched it again, with "Brock" the main character. themes, different stories, lots of fantastic rhetorics. Please visit and provide feedback if possible. Thank you all for reading. Read more:Fiction
TV Hinders the Learning Process (I Think) 2008-03-17 00:53:45 Forewarned, this article contains a lot of personal negative bias toward the entertainment industry, and was not accepted at suite101.com. I would still welcome any feedback on this tops here, thank you for reading!--------------------------------------------------------------------------------------------------Television programs today have taken on unconventional forms of education and impede learning and maturing processes of psychologically developing audiences. Once recognized however, the resolution simply points to alternative pastime activities. Onslaught of Commercials Shows and Movies As the entertainment industry expands, an evermore widening selection of television programs has become publicly available. Every single day, individuals young or old experience assaults of a Read more:Learning
, Process
Realistic Risks of Long Term Stock Investments 2008-03-18 12:41:56 Long investment positions of corporate common stocks carry inherent risks. Advisers, agents like to avoid this subject as it requires more profound considerations via the client investor, and understanding it would reveal the often unjustified entry-costs and management fees. Risk of General Market Downturn The stock markets have a positive correlation to general economic swings, and wield at least a couple of bearish years each decade. This leaves the probability of stock markets ending each year at higher levels of 70-80% at best. The industry analysts, advisers or brokers facilitate public ignorance of this easily in bullish periods, where any stock seems to rally effortlessly with the illusion that no forms of risk exist. Realistic
ally, just the opposite is true. The longer Read more:Risks
, Stock
, Investments
, Long Term
From Gambling To Winning The Financial Markets 2008-03-21 19:08:15 Gambling, a term loosely applied by those who understand little of mathematics particularly in the area of statistics or probability, implies playing a game with negative expectancy. People in general like to make assumptions about subjects that they do not fully understand, therefore justifying apathy, despair, often via past personal failures. Why Most People Fail Trading the financial markets, relevant knowledge separates the winners from chumps. Like any industry, a few industry leaders make the bulk of profits, followed by a whole lot of trend following losers. The markets do not offer an infinite sum of payoff for the players, hence the first come first serve phenomenon. If you follow the general crowd, and play the game like everybody else, then of course this feat qualifies Read more:Gambling
, Winning
, Financial
, Markets
Avoid Risk of Single Stock Failures 2008-03-20 13:26:34 Several means remain available today to avoid or minimize risk involved with business failures for the equity holders. According to business survival statistics I had listed in the past (Stock
Market Downside Bets), it moves below 50% after five years of operations. Managing this form of risk is crucial for the long term bullish investors. Exchange Traded Funds Making mutual funds obsolete, these listed baskets of goodies have become available to the general public with a variety of underlying stocks or commodities without the hefty management fees. The commodity ETF’s such as silver, gold, or oil pose virtually no risk of bankruptcy outside of the expected volatilities. Insider Transaction Analysis If the insiders have expressed way more volume in selling than buying in the Read more:Avoid
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