The 'Miss'tery of Analysis

This Post is currently incomplete - I will be working on the same slowly and you might need to wait for 72 hours before the blog is completed..... (72 hours from the time that is shown in your desktop)

As I look back at my life (and others), everything seems to follow a risk-return relationship (one can call it demand-supply or any other blah but that is not the pivot of this post). Well, almost every job…

Why is God is better than Man? He created Women and he created an Equity Analyst. Now compare the two. Surely the former is any day better than the latter unless the former is also a latter. The modernists do argue in favour of women equity analyst saying that two negatives can make a positive. Well, for the fear of my girlfriend, I will agree wholeheartedly to this viewpoint.

Equity Analysts have always befuddled me- they get paid for getting it right but the ‘right’ is not a constraint for pay, promotion or perks. Some of the interesting men I have met in my life are, thankfully, not equity analysts and so I know I can retain my friendship with these men in spite of this post.

To the uninitiated, an equity analyst (kindly understand that I mention only sell side analysts as equity analysts; I call buy side analysts as punters) makes recommendations for buying/selling a stock based on the analyst’s whims and fancies (subtlety disguised as research with a scientific basis). Don’t ask me whose definition of scientific process is used: Galileo’s or Ptolemy’s. Of course, one gets only a minor difference (i.e. from sun to earth) by adopting either scientific process.

When was the last time I saw a stock behave exactly as the analyst predicts? A lot! Though an overwhelming majority of the same happened in computer and Monte Carlo simulations and the rest (a miniscule amount comparable to Dubya’s brains) in reel life.

In reality, the occurrence has been quite dismal. Maybe it is because we don’t have enough women analysts out there.

Life is made more confusing by the disparaging yet standardized comments that these analyst make in the analyst report. So a stock can be ‘Buy, hold, sell’ or ‘ Outperform, market Perform or under perform’ or ‘Strong, neutral, weak’ etc etc. The only thing I have understood from all these is that analyst never performs. To be continued ....

The Retail Investor Explained...

(Once again, the genesis of this ludicrous article (/post) lies in the mail I sent to the finance_knowledge yahoo groups. This mail is modified from the original mailer)

One must pre-assume that the investor lies in a world of no fourth dimension* (pardon my 'Back to the Future' Analogy). I.e. He has equivalent (i.e. to finance guys) time and skill to monitor these stocks.

Retail investors, by their very genus, have the following characteristics that are generally NOT found in mammals:

1. The repeated failure to adhere to the 'Classical Conditioning' (Pavlovian Gas)
Despite learning and burning their body in various bulls and bear runs, the retail cat (/dog) doesn't learn from past mistakes- he will be late to the Boiling milk (/bell) but trust me, he will still go to it.

2. The amazing ability to find cause and effect relationships.
It is quite remarkable that something which was used to prove eugenics (now openly condemned by all but secretly revered by the same) is the now the cornerstone of all management literature.

What am I talking about? Co-relation and Regression.

The retail investor has the unique and singularly unwavering belief in any statistics put forth to him that the only thing that the latter regresses is the retail investor's brains. In fact, Galton was quite on spot when he titled his paper as “Regression towards Mediocrity in Hereditary Stature,"

Reference/s: Kindly refer to Kamath's article earlier or play my quiz at www.funtrivia.com

3. Slightly modifying the words of Agent Smith (Matrix), the retail investor is also like the virus
He will lay dormant and till he finds some favourable environment and then multiply during the runs. But unlike the virus, he will enter into self-destruct mode.

4. The retail investors are like a big sample size for one of God’s survey – “the pervasiveness and applicability of Murphy’s Law in repeated tests”. The retail investor is the best proof of the universal applicability of the only scientific verifiable fact – Murphy’s Law!

Finally, the most important point is that retail investor’s care - they care about the unemployment and degenerative state of the economy. They will do anything to generate maximum employment for all.

Otherwise why would an investor need a broker, a tax adviser, a DP agent, Banker, Cobbler, Peddler, Hawker to explain to him on where the investor should put his money. Of course, I haven’t considered the financial adviser. This breed is like a virus- you can never kill it. So this category is understandable. Kindly note that the above mentioned categories of ‘employment’ all have a common characteristic – Parkinson’s Law! Work expands to fill the time….

On a lateral thinking note, the word ‘re-tail’ itself shows the illuminati and literati think of the small investor. Put the tail back on the investor and send him back down the evolution chain!

Bored...?

* - Due to my limited mathematical comprehension capabilities, I assume that there are only 4 dimensions to the world, the last being time.
Only mathematicans with severely retarded cognitive powers will disagree with me.
Oh sorry, George Bush Jr. believes in a fifth dimension - that of himself.

Arguments and too many cents thrown in...

Sense and Sensibility at the Stock Exchange - Dedicated to the various men and some women who made life more difficult than ever before.

Well, we all know the question but what is the right answer?

The Fundamentalists like Graham, Todd (or was it Toad), Buffet all vouched for the Intrinsic value of the company. Well, they kept it simple and understandable. This helped a lot of people with redoubtable numerical skills to enter the financial world. They never got the Nobel Prize but many of them (like Buffet) made loads of money.

The Technical guys started by that almost reprehensible Charles Dow suggested that History was the best subject. Look back and we see the future. Years later, Stephen Hawking, in his brief history of Time, explained this better by using the ‘foldable
space-time continuum’ thingies. Well Chartists never made money nor did they get any Noble Prize. But Dow single-handedly ensured employment for a quarter of American population.

Then the Random Walkers (Alias ‘Demon of Chance’, Drunkards etc) were born. Well they used all those complicated mathematical symbols to make finance more imposing and complicated to understand. None liked them except the academicians (who finally got a sense of pride in their mundane and almost despicable work!) and the students (of non-commerce background especially engineers).
This group ensured that that engineering grads with NO marketing ability finally got jobs (and obscenely paid at that!).
This group got the Nobel Prizes but made no money. In fact, any one who trusted them LOST a hell lot of money. Ask the poor buggers who invested in LTCM. Well, one can’t blame because the worse case scenario which had a probability of occurring once in a
trillion years, just decided to occur in the 5th year (or thereabouts) of commencement of operations.

[I always thought the Nobel Guys were mad. First, they give a prize to Heckscher / Olin for proposing something and then they give another award to Leontif for disproving it. Geez…]

Finally we had the Diplomats, who opinioned that all of the above were correct or incorrect (depending on where they were speaking). Finally this group decided
on the uniform answer of “75-22-3 principle” (well, imagine a femme fatale with such stats!).

My take or two cents

I am too concerned for the reader’s well being to continue; BUT if anyone’s actually read all the above ‘incoherent nonsense’ and then had the strength to reply back, I will respond.
(This article was posted in a mail to finance_knowledge yahoogroups by myself. Slight modifciations have been made in this article)