Really? I find it easy. Just kidding. The hard part is being patient enough to wait for the really good bets to come along.* The harder part is coming to the realization that people's heuristics are generally pretty decent. The hardest part is not getting overly confident and making a fool of oneself with one's money.

Our discussions on this were very interesting and possibly even useful.

I'd quibble about the being patient bit as that makes it sound a one-sided problem when waiting too long is an equally big problem.

I disagree about people's heursistics being anything like pretty decent but it doesn't directly help us a lot of the time as many of the mistakes are unexploitable unless you are part of the 'house'* . Some are totally unexploitable**

I agree with you on over-confidence, the dangers of running too well are much underestimated.

*doing the lottery, buying extended warranties, buying and selling too frequently, excessive commissions, ponzi schemes, cash for gold etc etc

No, it is strong in terms of psychology and real life outcome. Kind of like calling a really tall midget "very tall" when he is in fact very short.

It is actually logarithmic... Once you are average, it doesn't really go up at all.

It is a once you got enough, having more doesn't do you much good. Kind of like being non-phlegmy and breathing.

They cluster around the "can't do much worse" end of things...

Controlling for parental SES is what is predictive. Having a high SES yourself while having a low income is arguably pretty stupid.

The first article you mentioned was about whether IQ predicts scholastic achievement, which, since IQ is a measure of academic achievement is a trivial result. The second is on delinquency, which is something that bad students tend to partake in. The third is an opinion piece.

FWIW, I don't dislike Murray because he is a white supremacist. I dislike Murray because he is really bad at statistics, psychology and genetics. Probably because he has no training in any of them.

A somewhat relavent read for you:
http://www.psychologytoday.com/files...al___2003_.pdf

This one is interesting in a way: http://www.eric.ed.gov/ERICWebPortal...accno=EJ772607 in that it actually gives the dollar amount for income and also states that really smart people are horrible with money compared to slightly above average folk. Controlling for parental SES was what dropped it to the $234 average gain per IQ point (with most of the increase occuring at low levels, just as the graph I posted showed).

I'm still looking for my favorite study on the matter. I believe it was by EK Strong (famous dead psychologist), but I can't find it. Probably have a mimeograph of it laying around somewhere...

I believe you. Being better at academics should have a greater payoff in future SES mobility among the poor than among the rich.

Tallest midget argument.

Educational achievement is a mixed bag. Obviously less than 8 years education is a problem.

If that was the only bet available, I'd take it. Thankfully, there are sufficient bets available with a better payoff and better odds. If I had infinite money, I'd guess I'd have to start slumming around looking for less profitable bets...

Your arguing against it helped quite a bit... It reminded me of some small matters that I had forgot about that could have led to ruin.

LDO. Waiting for Halley's comet isn't a good strategy. You have to balance out that you will not live forever with the natural tendency to want to immediately play at any old table that has an open seat.

The good bets come around every few years. It is really really hard to be that patient. This last decade has been very kind.

The rest of the time, you just have to make the easy bets that are nearly always available. Keep expenses below income, don't piss on your own bed, and other such things.

Keeping your eye out for Halley's comet all the while.

The heuristics are excellent for such matters as short term survival, breathing at the correct rate and getting laid.

They fall apart a little when dealing with some modern everyday stuff.

They fall apart a great deal when the recent past is not a reflection of the future.

You just have to note those as pipe dreams and move on. Plus, I imagine that you don't have the stomach for it even if you were the house.

Not for a good bayesian

Overconfidence is the easiest one to exploit. Or, it was. Based on last year, I suspect that others with have figured this out and jumped line on me.

Pleased to have helped. i wonder if being me polite would have been so helpful

That's too trite. The stat arb I do has the interesting property that every time there is a good betting opportunity it is fairly likely that waiting a short time will offer a significantly better betting opportunity. (I suspect something similar is true for your investing approach).

especially over-confident baysians.

Wouldn't have made a whit of difference to me. I know that we are friends, so I take your idiosyncracies into account.

I am glad that you noticed that for your stat arb. I was kind of afraid that you hadn't and hoped that you took my various hints.

Expecting regression to the mean can take you to bankruptcy.

There are ways around that, but you have to be willing to only go long and give up significant upside potential for what is a long-term sure bet.

As we are both older and more established, taking shots at glory doesn't make sense when the downside is ruin and the upside is only a little more comfort. (doesn't make sense for the youngins either, but they are full of piss and vinegar, and have no sense of the future, so my words will not discourage them)

Heh. A true bayesian can't be over-confident. An assumption is that we can't know wtf is really going on.

I'm not sure the ocnversation would have sustained itself enough.

No that's not it. The good bets are good bets, they are +ev bankruptcy is not the problem and expecting mean reversion is correct. its still the case that every good betting opportunity is frequenty followed by a significantly better opportunity so waiting is always good but always waiting is bad. Its kinda interesting.

Thats true thouigh a different subject. I disagree about the young bit if I was 21 again I'd go for it. I genuinely believe if i knew then what i know now I would make a fortune even if I went bust a few times along the way. Now I cant risk going bust.

I assume they're human.

Finance maybe. But engineering? Uh, no.

You know engineering is the most highly paid major, right? Unless I'm misunderstanding your point.

I was arguing like Madnak did that the science/engineering major kids aren't in it for the money. And that they like learning as much as any other major. Comp Sci major taking philosophy courses on own time and money, or English Lit? You really think the latter? Also agree with Chezlaw that the degree isn't important. Kid with no college or who dropped out is like 5-1 to be better software engineer than the M.S. one.

Possibly. We are at our best when we waffle between being kind and making fun of each other.

The problem with mean reversion is that it is really hard to know what the mean that is to be reverted to actually is.

The other problem is that mean reversion can (and often does) take decades. Momentum exists.

It would be a much easier optimization problem if I were infinitely long-lived or infinitely wealthy. I don't hold much truck with being found to be conceptually correct sometime after I die poor.

I don't think I'd have done much particularly differently (assuming just a better understanding of the concepts than I'd had at the time). If I could go back and coach young-me, I doubt that I'd talk much about financial matters.

There are pretty simple ways around that. The trick is to correctly frame the problem and to not expect miracles.

Not actually an issue for stat arb. You can start anywhere, sounds counter-intuitive but you cna prove it fairly easily just by looking at data sets and changing the initial values - all sets of data fairly quickly converge to the same graph. The reason for this covers your next objection.

Moving averages. Its usual to use an exponentional moving average and reasonable parameters guarantee reasonably fast convergence - also the reason the initial conditions are not significant.


Good point but a few pointers would make all the difference. I've had two big opportunities to get very rich, the first took me ~10 years to notice even though it was kicking me in the teeth for attention (by which time there was only the opportunity to make a fair bit) and the second has come probably too late.

There is other stuff that would have been more than useful but I do think I would have bene particularly good at being rich.

I could not disagree more. Things get seriously out of line from time to time. Solvency is a major issue when what looks like a good stat arb becomes a better bet a short time later.

Moving averages don't tell you what you should do next. Inflection points happen, my friend, and they are often violent. Making a little bit nearly all the time, and losing it all the remainder of the time isn't a good strategy unless you are playing with other people's money.

I have decided recently to take the route of being overpaid for what I do, living as if I were paid what I think my fair wage should be, and stocking the rest away in case I am ever found out.

I'm sure that is true on both counts.

Its not a matter of disagreement. Given any initial conditions the graphs converge quickly, the initial condition simply dont matter.

Moving averages overcome momentum - they are remorseless. Inflection points are fun.

I agree, fortunately not a stategy I follow. My losses and profits are of the same magnitude. Losing it all from violent inflexions or momentum isnt really an issue - if you look at those who lose it all its because they dont practice bankroll management. It is the reason that getting rich from it is a young mans game as to get rich now I would have to practice bad bankroll management.

Plus genuine inflexion points are implausible, this isn't a simple pair trade there are many shares involved and I suspect the risk of a genuine violent inflexion is probably about the same as with what you do (maybe lower) - a black swan delux would be requred and at least I'm fairly market neutral.

There is of course the issue of whether the whole idea I'm following is based on a fallacy but that's true for you as well. I guarantee you that the historical data favours me.

I used to be way overpaid but I resented having to go in to work. It was too hard to understand why they didn't pay me the chunk above what I was worth and let me stay at home.

The ability to lie really well and be wonderfully convincing and charming at the same time, engage in brilliant obfuscation (another form of lying), and be consistent in drinking just the right amount of alcohol in all circumstances.


Dumb people can't do any of the above. Well, there is alot more that dumb people can't do but the above are real killers to success and the good life.