Clive wrote something I find interesting. 50% of investors must think a stock will go up and 50% down. Other wise the price would move.
I have not made that conclusion from what Clive has said at all. IF that is what Clive has said or meant(which I did not read in his remarks) then obviously the thought behind it is wrong: prices move all the time one way or another and often in unpredictable ways. . .and to such an extend that most investors did not expect it. . .so what people think collectively and on the average any one day for making the prices move is not known. At best one can speculate afterwards why investors "let the prices drop" one any day or caused them to rise, if the prices did rise: the answers will mainly remain hidden and are later. To some extend, extracted from "what happened" by pundits on the basis of emerging information about the market sentiment.
The fact that prices are rising is not something you can pin on people with percentages. . .the action of one man can make the entire market go into a dive or spiral upwards, so in that case 99.999999 % of all investors had nothing to do with it. . .they woke up one moment and saw the silver price change rapidly and did not know what hit them until later!.
The problem is you can not optimise for the future ..... only the past ...... so you might as well use 50 -50 .
Of course one can do that. . .or may be two, or three people can do it. . .actually a lot more. . .the fact that you and I can not do that it is the reason we are here writing on forums about what we think sometimes and how wrong we can be about how the prices move. If we knew how to be terrific investors we would be out there in the marketplace pulling strings and pushing buttons and pulling millions of dollars from the pockets of those who know next to nothing about investing[that is what is happening but you and I are not so good at it J].. . just kidding here. Optimising the future THAT is not the issue at all that lies at the centre of the questions that I try to answer. The future will unfold on the basis of collective behaviour, that much is certain. No one it trying to optimises the future and those that think they can are calling a spade a shovel or a hoe, except a spade. . . you are trying to make things too Fuzzy for all of us J.
When I write about doing an “optimisation run” I do NOT write about optimising the past nor optimising the future but I am simply optimising a set of parameters in a mathematical algorithm for a particular data set. . .it is a method that is used in many different field of human endeavour. . .almost anything people do involves optimisation. . even housewives do it to run a household and kids do it to get the maximum amount of pocket money from their parents. . some people don’t optimise anything and make a mess of their lives. I do it by working as little as possible and still get money for doing nothing. . .The laws of business are simple optimisations. . . maximise profits and spends as little as possible resources, and if necessary lay off 10 000 people. . when the time is ripe all these people and maybe more will be glad to go to work again. . . sometimes even for lower wages.
So, now it is clear: optimising a system like a car engine or an AIM algorithm is nothing more that fine tuning the operation parameters for a given future operating environment. If you have fine-tuned a gas engine and tomorrow you feed it with diesel fuel it will not run properly, it may even die out immediately or not even strat. With an investment system it is no different..
The point in my previous post was that if you optimise your Investment Engine on a 10-year run then the engine is fine-tuned for that Data Set only. Now, you can jump high or jump not at all and scream bloody murder that the optimisation is useless for the future, but it is still an optimised system for the data set that was used to optimise it, and if stock prices are repeating themselves then the optimised machine will give optimised performance, irrespective of the screaming you did. Now, on top of that, the prices in the future could possibly repeat themselves. . . all sorts of strategies in life are based on the possibility that something is going to happen in a similar way that it happened in the past. . .for example if today I plan to do something tomorrow that requires the sun to shine at Noon, I already have a very good hunch the sun will rise tomorrow as usual, and according to the weather bureau there is a 99% chance that at Noon tomorrow it will be sunny, then I will plan to do at Noon tomorrow what I had in mind and I can be quite sure that it will be sunny then.
In the stock market it no different. . there is a possibility that the stock price for a fund in the next 10 years moves exactly as before, or moves approximately in the same pattern. If it does you hit the jackpot. If it does not then the performance might be better or worse than the optimum.
It may well be so that in the light of history a 10-year optimisation procedure is pointless from a practical point of view and that a 3-year run might be an optimum time span. Whether or not 50/50 for the CER is better than an optimised CER (based on previous data) lies at the core of the Issue here. Your argument that instead of optimising the investment machine for the stock you are investing in “you might as well use 50/50” is nonsense. . .it sounds like something desperate for you, based on the way you said it. Using a 50/50 CER is only wise if you know that for that stock any other setting is worse. If the stock has been trading within a certain trading range for 5 years and the optimum for that is a CER of 75/25 you would be a fool to start at 25/75 or even at 50/50. In a real case you might even profit from deviating from the 75/25/ optimum if you consider the day-price for stepping-in in relation to the trading range price limits. That way you can improve even on the average optimised setting. Any information you can use to decide what is the best strategy for your investment will help you achieving a better yield as long as the information is interpreted in the correct way. . . all the discussion on that AIM Forum are focussed on that: the skill of the investor.
So I repeat: optimising a machine is useful . . .for such efforts will get you closer to the optimum tuning set than doing nothing. . .in that Clive at least agrees: if your tuning of the system and selecting the optimised parameters so that the prices move as you predict then you will ADD Value to you portfolio. If you are wrong then you will lose out.
So the entire question amounts to how well one can set the parameters of the investment machine so it will be optimum for the prices that are to develop. . .the skill of the investor is the key in all this . . .it is all about fine tuning the Investor as well as his Machine.
The question is not what a complete Fool should do when he picks an arbitrary fund about which he knows nothing. A complete Fool would not listen to any advice anyway.
I am not sure where this is going. . .maybe I am a complete Fool.
