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A friend asked me to write up my private comments about AMD. So here are they. Profitless Prosperity AMD is an example of profitless prosperity. What does it mean ? It means that AMD has contributed enormously to the prosperity of our society, but the company itself could not make much profit. AMD’s long term investors didn’t fare . . . → Read More: Comments about AMD (Advanced Micro Devices) Just a quick note: Mesenchymal Stem Cells (MSC), which can be taken from adult donors and are universally compatible (no controversy, unlike embryonic stem cells) have been tested in labs for maybe 10 years now, and studies have shown that MSC can help fight a multitude of health problems (diabetes, cardiac, Crohn’s, cerebral, cancer, …) with remarkable . . . → Read More: Playing the adult stem cell revolution Many people jumped in to the stock market hoping to get rich quickly, but instead of getting rich, they burned most or all of their money. Even the legendary speculator Jesse Livermore, who made millions of dollar on the stock market a century ago (he would have been a billionaire in today’s dollars), committed suicide in the end after he lost it all. The number 1 reason for bankruptcy on the stock market is not bad market analysis, but bad risk management. You can be right most of the times, and still go under if you don’t manage your risks well. On the other hand, as unbelievable as it may sound, with a proper risk management you can actually make money on the stock market in the long term, even if you know nothing about the direction of the market ! Continue reading Get poor quick vs. get rich slow: 2-asset portfolio theory On Wall Street there are real gurus like Warren Buffet (who has the discipline to follow simple but very effective investment rules), James Simons (who profits from the inefficiencies of the market by using mathematical strategies) or Joseph Stiglitz (who develops modern financial theories which fit our reality). But there are also a multitude of fake gurus, and if you follow their advice you will most probably lose money. In probability and statistics, one often talks about the expected value of a random variable, but very rarely about the geometric expected value. However, in finance, the geometric expected value is extremely important. or so Sun Tzu said, and the stock market is a war ! If you keep that in mind, then maybe you will be able to understand many asburd things on Wall Street, and avoid being “killed” by the “sharks”. Nowadays, only about 2% of all trading on the stock markets are real investing (long term, fundamentals-oriented, “cooperative”, “win-win”), the other 98% is a zero-sum game, where for some person to win, another person must lose. When you enter the stock market, you enter a war, where a multitude of adversaires are there trying to kill you (that is to take all the money they can take from you). And how do they do that ? By deception, of course ! OSIRIS is the stock with the highest implied volatility on the US stock market today: higher than 220% ! Usually, most stocks have their implied volatility in the 30%-50% range, and an implied volatility of 100% is already very high. But OSIR has had implied volatility > 220% for a week now. What’s is more: the implied volatility . . . → Read More: Free money: OSIRIS (Nasdaq: OSIR) crazy options First, a bit of theory. What is volatility ? In mathematical finance, volatility is a measure of “irregularity” of a price movement. It is important to note that volatility does not measure the magnitude of the price movement per se (a stock can go up every day with a constant speed and have zero (historical) volatility), but rather the magnitude of the change of the velocity of the price movement (if a stock moves up and down and up and down 10-15% a day, then its volatility is high even though its performance over a 1-month period may be zero). In other words, volatility is a measure of second variation (and not first variation) Continue reading Playing with volatility: Huron (HURN) example There are many different non-equivalent ways to define and quantize risk. One of them, invented by Philippe Artzner et al. (Artzner, Philippe, Freddy Delbaen, Jean-Marc Eber, David Heath: Coherent Measures of Risk, Mathematical Finance 9 (1999), no. 3, 203-228), has a very catchy name: “Coherent risk measure”. This paper seems to be an interesting but failed attempt to study risk in an axiomatic way. The efficient market theory, which states that the stock market moves randomly (because all the available information about the stocks are already factored in the price, and future movements depend solely on random future events that are not known yet), has a very strong following among “ivory tower economists”, even though it has been proved wrong . . . → Read More: Why the “efficient market theory” is bullshit ? Today SHLD announced a very bad quarterly report (10% decline in sales, and negative earnings), sending its stock price down 12%
Today’s bad earnings release of SHLD may come as a surprise to many people. (The analysists expected it to make a profit). But it’s not really surprising for those who know the history of Sears Holdings. Exchange Trade Funds have become very popular on Wall Street. According to yahoo finance (http://finance.yahoo.com/etf/browser/tv), there are now more than 800 ETFs, of which about a hundred are very liquid (with an average daily volume > 1M shares). These ETFs are interesting vehicles for trading the world markets and industry sectors, and also for leveraging and hedging, without the hassles and the additional risks of buying and selling individual stocks in different markets and currencies. There are some interesting articles on wikipedia about price/earnings ratio, interest rate, earnings growth, and valuation of stocks: http://en.wikipedia.org/wiki/P/E_ratio http://en.wikipedia.org/wiki/Earnings_growth Of particular interest are the statistics about these numbers for the US market over a period of more than 100 years. |
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