Black Swans stock trading

[counter_violent]

And as for you; ****-er_Violent, you are next on my list.

Yeah i'm all in a dither obviously :whistling

 

[Black Swan]

Yeh but even though you can see price patterns on an indicator,it lags price so shouldn't you just look at price anyway? By HA do you mean heiken ashi candles? And why are you trading S&P; I thought you were making 100k pips a year on eurusd. Yeh i agree anything below 1H, is really hard to read, I don't do below daily.

Edit: One thing I don't like about indicators is a lot of them only take into account the closing price, rather than the range/volatility of a bar.

"Price action on dailys"...kills me very time I read or hear of it..particularly from folk who tell me "but indicators lag"..lag like what; a day or a couple of fookin days?..hahahahaha...

Nice one Chartsy you're kinda fun, in very small doses...

 

[Black Swan]

Yeah i'm all in a dither obviously :whistling

Swerved my offer to mod eh? Shameless..we'd have a purge that'd make Stalin blush, I'd ban meself obviously..

 

[counter_violent]

Swerved my offer to mod eh? Shameless..we'd have a purge that'd make Stalin blush, I'd ban meself obviously..

Not swerving anything still waiting for a reply to PM yonks ago

 

[badi]

Black Swans can not be predicted.and, therefore, are a potential disaster to anyone who uses the theory for wealth improvement.

It is one of the properties of Black Swans that they are not predictable, the idea is to trade even when you don't know what is going happen, in this aspect some companies are likely to make big growth, others are unlikely to.

Is it because of the word "Black" that you think it must be disastrous? Generalizing the Black Swan as a disaster concept is just too simplistic !

P.S. : Taleb doesn't consider himself a theorist and doesn't consider The Black Swan to be a theory.

 

[brettus]

It is one of the properties of Black Swans that they are not predictable, the idea is to trade even when you don't know what is going happen, in this aspect some companies are likely to make big growth, others are unlikely to.

Is it because of the word "Black" that you think it must be disastrous? Generalizing the Black Swan as a disaster concept is just too simplistic !

P.S. : Taleb doesn't consider himself a theorist and doesn't consider The Black Swan to be a theory.

If you didn't have that stock that went up 244k, then what would your return have been?

 

[badi]

If you didn't have that stock that went up 244k, then what would your return have been?

This is a hypothetical question, get real.

 

[Splitlink]

As a Black Swan trader I count on the stocks that make huge profits, doesn't matter if they are few, because the growth opportunities are limitless while the losses are limited, in this aspect the number of winners VS losers is irrelevant.

Are the growth opportunities limitless? In theory they may be but in real life? Most of the shares in the FT100 are unable to, anywhere near, double their profits over five annual results and they are overpriced , even when low, in relation to their eps growth.
They must be considered to be value shares because of their assets.

Growth stocks are likely to be low capitalised companies with several years of impressive profits ,little debt, and potential for expansion into new markets.

I would be hard put to select 60 shares to put into a portfolio. Your idea may be ok for fund managers but, for the likes of most of us, it would be impracticable.

 

[badi]

Are the growth opportunities limitless? In theory they may be but in real life? Most of the shares in the FT100 are unable to, anywhere near, double their profits over five annual results and they are overpriced , even when low, in relation to their eps growth.
They must be considered to be value shares because of their assets.

I wouldn't pick companies that made it to the FT100 because they most likely have consumed their potential of very big growth, not what I look for.

Growth stocks are likely to be low capitalised companies with several years of impressive profits ,little debt, and potential for expansion into new markets.

I will answer this in an epistemological way: I don't chase companies that show good data, because once the information is public it is consumed by the market (market efficiency) and therefor it is useless from an investor's standpoint (note: I don't think that the market is fully efficient outside of Economics classes, but it must be efficient in some way, no need to go into unnecessary details...)
What I look for are companies that are likely to publish good data in the future, the information is not detained by anybody, yet, and here you have edge over the market.

If the information doesn't exist yet, than how do I have it ? I don't have information about the future, but certain companies are involved in behaviors that make them more in the way of Black Swans - big and unexpected events, and since my picks are cheap they have nowhere to go but little bit below and very much up.

I would be hard put to select 60 shares to put into a portfolio. Your idea may be ok for fund managers but, for the likes of most of us, it would be impracticable.

That may be true. Actually I believe 60 is relatively small , I think it is better to go for over 150 shares in the portfolio.

 

[badi]

If you didn't have that stock that went up 244k, then what would your return have been?

If you look at the portfolio you will see that I bought more shares of INSM than any other company, that wasn't an arbitrary decision.

 

[spreader_legger]

I was a bit disappointed by Taleb's remarks in a recent channel 4 interview ... I believe it was with Paxman on Newsnight.

Taleb was of the opinion that we lived in a different age to the 16th century & that the Arab spring was the inevitability of democratic forces. To me this sounded very much like the new paradigm shifts one heard before the tech bust of 2000.

Indeed democracy existed long before this age, & the belief that today is somehow different from yesterday is somewhat presumptuous if not arrogant.

Irrespective of these facts, Taleb does make some interesting points & I would not want to belittle his contributions

Hello everyone,

I want to share with the community my experience of picking stocks based on the Black Swan concept. I am sure most of you are already familiar with the title and must have heard of Nassim Nicholas Taleb, the author of the book "The Black Swan - The Impact of the highly improbable". I must say Mr Taleb is one of the sharpest thinkers of our age and his thoughts helped shape my trading mentality.

I will not go for long about the idea of the black swan, but I will elaborate it in the trading context:

Black Swans hit the companies that belong to Extremistan (the land of the extremes: the extremely big and the extremely small)

Negative black swans hit the relatively big companies that belong to Extremistan: their history will be constituted of numerous small gains followed by a massive loss that wipes all their gains accumulated. (attachment: negative_black_swan.png is an example)

Positive black swans hit the relatively small companies that belong to Extremistan: their history will be constituted of numerous small losses followed by a huge profit that will cover all the losses accumulated. (attachment: stocks_evolution.png is an example which is my own portfolio)

You may notice that they are opposite situations.

My portfolio:
Between Mai and June 2010 I have picked tens of cheap stocks on Investopedia's Simulator ( they were priced under $10), my expectations were the following:
There will be many loosing companies, possibly most of them will be losers.
There will be few winners that will cover all the losses accumulated and make extra profits.

Now, one year later the portfolio behaved as I expected (as of June 13 2011):

Out of 60 stocks 32 were losers (53%), including 2 companies that went bust.
The overall lost amount is around 136K.
One company and only one company made over 244k, not only it did cover all the losses accumulated it made on it's own over 108k in net profits, the company is Insmed Inc (NASDQ:INSM).

The overall won amount is 379k. The net growth of the portfolio is over 35%.

See attached graphics.

About Insmed: it is a biopharmaceutical company specializing in some sort of protein development, I bought that stock for the following reasons:
1. It is a development company, which is basically on the edge of Black Swans: researchers and scientists are among the first to cause big and massive changes in the world. Also Protein development is an open field in which we never what they might make, so we are open and ready for big positive changes (positive Black Swans).
2. Proteins are very much needed in the Biopharma sector, I don't need to tell you it is one big sector.

Statistical anomalies:
If you pick randomly a large set of penny stocks chances are there will be few companies that will randomly rise and make big growth that might cover all the losses accumulated, so is my portfolio just like that case ?
No, because:
1. The set of my picks isn't very large: only a few tens of stocks.
2. My picks aren't random.

I already know that the Black Swan's concept is often misunderstood or not understood at all. I am already familiar with some of the common comments but it won't stop me from opening the discussion and being open to your comments.

 

[brettus]

If you look at the portfolio you will see that I bought more shares of INSM than any other company, that wasn't an arbitrary decision.

My opinion is that if you didn't pick that stock that went up by such a huge amount you would have been outperformed by the S&P. I think building a portfolio of stocks is a good idea, but if the market collapsed you would have underperformed the S&P. You just bought riskier stocks that have a higher beta than the S&P, so you will always outperform the S&P while it's going up, but when it falls it always means you would underperform it.

 

[Splitlink]

What I look for are companies that are likely to publish good data in the future, the information is not detained by anybody, yet, and here you have edge over the market.



That may be true. Actually I believe 60 is relatively small , I think it is better to go for over 150 shares in the portfolio.

I appreciate your posts, even if we do not agree on our methods of selection. I do agree with the above part , though. Forecasting future growth targets have to come into the process. That is, always, the unknown, but a share that has shown almost unbroken growth over several years is more likely to continue the trend. All shares become ex-growth, sooner of later, of course.

Yours is an interesting subject but must cost you a lot of work. However, that is the secret of success. I wish you success with it.

Split

 

[badi]

I appreciate your posts, even if we do not agree on our methods of selection. I do agree with the above part , though. Forecasting future growth targets have to come into the process. That is, always, the unknown, but a share that has shown almost unbroken growth over several years is more likely to continue the trend. All shares become ex-growth, sooner of later, of course.

Yours is an interesting subject but must cost you a lot of work. However, that is the secret of success. I wish you success with it.

Split

Thanks Split I appreciate it, if you want my opinion on a given stock PM me, I'll be glad to help you.

Cheers

 

[badi]

Here is a list of my actual picks of cheap US stocks of small cap companies, this is not my full list but this one is good as it is:

Company | Listing | Price when picked

Aehr Test Systems | NASDAQ:AEHR | 1.25 |
Uluru Inc. | AMEX:ULU | 0.0499 |
Banks.com Inc | AMEX:BNX | 0.132 |
Capstone Therapeutics Corp. | NASDAQ:CAPS | 0.237 |
Rosetta Genomics Ltd. (USA) | NASDAQ:ROSG | 0.3 |
Cycle Country Accessories Corp | AMEX:ATC | 0.33 |
Energy Focus Inc. | NASDAQ:EFOI | 0.405 |
China Nuokang Bio-Pharmaceutical Inc. | NASDAQ:NKBP | 4.25 |
Digital Power Corporation | AMEX: DPW | 1.46 |
eOn Communications Corporation | NASDAQ:EONC | 1.82 |
Escalon Medical Corp. | NASDAQ:ESMC | 1.22 |
Good Times Restaurants Inc. | NASDAQ:GTIM | 2 |
Ku6 Media Co. Ltd. | NASDAQ:KUTV | 2.85 |
Jacada Ltd. | NASDAQ:JCDA | 2.26 |
Intelligent Systems Corporation | AMEX:INS | 1.31 |
Marshall Edwards Inc. | NASDAQ:MSHL | 1.04 |
Onstream Media Corp | NASDAQ:ONSM | 0.96 |
Peoples Educational Holdings Inc. | NASDAQEDH | 1.21 |
Pressure BioSciences Inc. | NASDAQBIO | 0.97 |
Spherix Incorporated | NASDAQ:SPEX | 2.68 |
Tofutti Brands Inc. | AMEX:TOF | 2 |

The different companies are not of equal importance, therefor I wouldn't invest in them equally, the importance of a company is a degree on a scale of ten that won't be published.

The investment horizon is for more than 1 year, give it time and watch how some of these babies will grow...

I don't recommend investing in one stock in particular, nor do I recommend a portfolio limited to these companies only, personally I wouldn't make a portfolio of less than 80-100 stocks. This is mostly for demonstrative purposes...

 

[badi]

I ran a Google search for the phrase "Black Swan" to see what bloggers and analysts are saying about Black Swans, each and every one of the results was about the negative ones: market crash, crisis, downtrend... No wonder people hardly know about positive Black Swans.

Nassim Taleb mentioned briefly positive Black Swans trading in his book, here are some quotes

There are both positive and negative Black Swans.William Goldman was involved in the movies, a positive-Black Swan business. Uncertainty did occasionally pay off there.

and

Aside from the movies, examples of positive-Black Swan businesses are: some segments of publishing, scientific research, and venture capital. In these businesses, you lose small to make big.

My strategy isn't about "positive Black Swan businesses" but about "Positive Black Swan Practices".

You have little to lose per book and, for completely unexpected reasons, any given book might take off. The downside is small and easily controlled.

similarly to my portfolio you have little to lose per stock but for some reason one of them might take off, just like happened last year with INSM.

In these businesses you are lucky if you don't know anything—particularly if others don't know anything either, but aren't aware of it.

This speaks about the edge you would have over the market, when you see the opportunity but nobody else sees it.

Mr Taleb speaks most of the time about practices that would greatly hurt the economy, he warns the world of the disasters that would happen if we continue to take big risks, but the Negative Black Swan is only half the story of the Black Swan.
Despite the brief paragraphs in the book, I developed deep and advanced understanding of Positive Black Swans and how to benefit from them.

I picked the above quotes for people who didn't get absolutely anything about my strategy, and for those who discarded it just because it didn't speak about down trends and short selling.

I think it is very important for the Economy to identify it's fragile points and work on them to be less in the way of Negative Black Swans, I believe it is equally important for the Economy to identify the opportunities of big growth and be more in the way of Positive Black Swans.

 

[StupidCow]

So, I gather that the point is this: Find a company with a stock price that has been to the pavement and left for dead; make sure the company is still viable and the management is competent; ensure enough market cap to make the stock price redeemable upon its revival; and most importantly, ensure that the reason the stock price was pounded into the ground has everything to do with the uncertainty principle, or some kind of "Black Swan" event that most likely won't happen again in either yours or my lifetime. Then, invest, hold and reap the rewards of a wise buying decision.

Did I get that just about right, or did I miss something.

Isn't this precisely what got Timothy Sykes, a spot on Wall Street Warriors. Timothy, said, "the black swan changed my view of how the world works."

Quite frankly, I like the concept, but what's the real availability of such Black Swans driven opportunities on a daily or weekly basis. Translation, Black Swans appear to be within the investors domain and execution event horizon and not the trader?

Lastly, does Black Swan investing = Value Investing On Steroids?

 

[badi]

So, I gather that the point is this: Find a company with a stock price that has been to the pavement and left for dead; make sure the company is still viable and the management is competent; ensure enough market cap to make the stock price redeemable upon its revival; and most importantly, ensure that the reason the stock price was pounded into the ground has everything to do with the uncertainty principle, or some kind of "Black Swan" event that most likely won't happen again in either yours or my lifetime. Then, invest, hold and reap the rewards of a wise buying decision.

Did I get that just about right, or did I miss something.

Actually you missed much, what you are talking about is the scenario of a company that was hit by a Negative Black Swan - made big unexpected losses, not particularly what I look for.
My point is about Positive Black Swan : big and unexpected growth.

I don't look for companies with bad data in particular and I stay away from companies that publish good and attractive data, because everybody start already to pay attention, momentum will build up, the trend begins and it is too late...
What is important for me is the absence of data, the companies in the shadows!

Quite frankly, I like the concept, but what's the real availability of such Black Swans driven opportunities on a daily or weekly basis. Translation, Black Swans appear to be within the investors domain and execution event horizon and not the trader?

Lastly, does Black Swan investing = Value Investing On Steroids?

I agree, and good one!
In fact the concept of Black Swan elevated my thinking towards the future and the unknown, now even though I don't know anything about the future I see the structure of the big and unexpected events, I can't tell the fate of a given company in particular but if there will be any of the Positive Black Swans (big unexpected growth) happening in the stock market I'm sure I'll catch some of them.

What looks like steroids investing to me is calculating probabilities of an event from a limited set of factors and supposing that you had all the factors included, while actually you haven't included everything because you don't know everything, and when you make such probabilities and invest big accordingly you will be making yourself fragile and you will be hit by a Negative Black Swan: the factors you didn't include in the calculation didn't go anywhere they were just waiting and gathering and unifying like an opposing army and once they are strong enough they will kick your ass! This is a long and complex joke but I still find it funny!

 

[badi]

correction: in a previous post I mentioned "non scalable growth", what I meant was "scalable growth" instead.