my journal 3

[Yamato]

emptiness (scattered thoughts)

Emptiness is what I feel each time I feel I've accomplished some task. I've been so used to going from one challenge to the next that I end up feeling uncomfortable without challenges. Sometimes I end up creating them, such as when I place discretionary trades, hopeless ones. To fill my life with entertainment, thrills, challenges.

Challenges can be good and bad. I am tired of the menial tasks and challenges at work, and those from the daily life at work and outside ("how are you?" "fine, thanks"): they wear me down, make me slow, stupid, retarded.

There are new challenges that wake you up, and others, like interacting with stupid people (95% of people), that wear you down.

The office, overall, wears me down.

Friends wear me down.

The former neighbor called me again, to meet for dinner. She wears me down. She chases me to get me to treat her dinner, like I used to do in the past, and I just won't do it anymore. Today she sent me a text message asking me out of a chocolate at the american pastries shop - which I'd have to pay for her. Too bad the lady told me yesterday that they don't have hot chocolate any more, because of the strike - they won't have it until next Fall. So I'll save the money on that. And I won't have to leave the house.

Actually I will, because I have my restaurant vouchers, a lot of them, so I set to meet her on sunday night and we'll buy some salmon and wine, with my restaurant vouchers. This means I won't spend anything, because I don't know how else to use them. I could invest them, I'd wire them to my IB account.

Moments in the Moonlight - Frank Sinatra - YouTube

...

So I feel empty, like I do when I've just accomplished something. And when I feel empty, my mind is... not seeing any more fences to jump, and my mind doesn't see fences, it sees dangers, risks, death - all things that were being hidden by the fence. That's why we look for fences to jump, maybe. To hide those other things that we see when there's nothing to work on. Some people look for people to shoot the ****, others look for tasks and fences to jump. That makes me a hard worker, because I turn to work rather than people to avoid unpleasant thoughts.

And the "how are you? fine" people annoy me. I don't need them. I don't need people to keep my mind off things. I use my frustrations to help me build a better future for me. And their idle talk keeps me from doing that.

So yes - provided they don't start stealing my stuff like sometimes happens (not yet at the office) - I prefer to be perceived as whatever is necessary in order to be left alone. Shy will do. Antisocial will do. Handicapped will do, too. Whatever works best. I am not shy. But coming off as pathologically shy is maybe the... best way, most efficient way to not be bothered. The problem is that I am also sincere, and one way or another they know I consider them a bunch of nimrods.

Or maybe it's different. Maybe as a child my parents didn't buy the expensive clothes and I could not be part of the "cool" crowd. So I start going in a different direction since then, because of something as trivial as that - yeah, that might be the case. You go off in an antisocial anticonformist direction, not because of any good reasons, but because your parents don't let you watch tv, or don't buy the expensive sneakers, and then you keep going in that direction. Then, because you're going in a different direction - then you find other valuable reasons for being different, like you're more intelligent, because, not having those sneakers, you don't spend time with them, you think and maybe become more intelligent.

It might have all started because of a pair of trendy sneakers my parents didn't buy me. In fact I remember a lot of similar incidents. They always told me I was better than that, and we weren't into superficial things, that it wasn't worth to spend so much money on trivial things. That other people were superficial, sinners... you get my point.

That's when I started going in a different direction. Then you become different, and once you're different, since we all think we are the best, one way or another, then, if you're different from the conformist crowd, then they must be the idiots. In the same way, if I am not spending time with them, talking about soccer and engaging in "how are you? fine thanks" conversations, then they think I must be the wrong one, the stupid one. Having said this, I still think they're the idiots, despite knowing that I have this point of view merely because they didn't buy me those trendy sneakers.

Redemption Song - Johnny Cash and Joe Strummer - YouTube

 

[Yamato]

Trevor Cotton's Photostream

Flickr: Trevor Cotton's Photostream

Wow, how does he do it? These are better than paintings.

I am just posting one of my favorite ones:
All sizes | Shallow waters | Flickr - Photo Sharing!



Smooth. Smooth and colorful. Obviously they're not totally real, but close enough to reality to make the whole thing beautiful:
http://www.flickr.com/photos/exectra/show/

 

[Yamato]

Fred Astaire - Puttin' On the Ritz (DVD Quality) - YouTube

 

[Yamato]

weekly update

In a few minutes I'll do the weekly update. This week the systems most likely lost money for the third week in a row. And it's the fifth week since I resumed trading, with a starting capital of about 4k and now I have about 9k.

Monday there's a holiday so trading will resume on Tuesday.

[...]

Yeah, the systems lost a hundred bucks. Third unprofitable week in a row:




Chart of the situation, which clearly still looks ok:




Dude... according to this thing, the systems have only made me 1600 dollars in these 5 weeks, but then why am I up almost 5k? I guess on top of the 2000 made with discretionary trades, which brings the total to 3600, i made another thousand by inadvertently subtracting margin from the systems when they would have lost, had they been able to trade. I underestimated the extent of this, so I can say my discretionary trading made me 3000 dollars. Ridiculous. I made twice as much by doing the wrong reckless thing i always do (compulsive gambling), instead of the right thing (non-tampered automated trading).

I always tell you this: you could even lose by doing the right thing, which will pay off in the long run, and win by doing the wrong thing, which will blow out the account in the long run.

At any rate, so far the systems have heavily underperformed relative to their track record - as expected. However, I could still make money with them. And they did make some money. But, had I depended entirely on them, right now I would have less than 6k - which would really really suck.

So am I happy that I engaged in discretionary trading, which for me means compulsive gambling? Of course I am, considering the way it turned out. And unfortunately this also means positive reinforcement of a bad bad behaviour. And here's something about this thing:
http://en.wikipedia.org/wiki/Reinforcement#Positive_and_negative_reinforcement

As Skinner discussed, positive reinforcement is superior to punishment in altering behavior. He maintained that punishment was not simply the opposite of positive reinforcement; positive reinforcement results in lasting behavioral modification, whereas punishment changes behavior only temporarily and presents many detrimental side effects.

[...]

Lost 3200 in the last 3 weeks (had I allowed the systems to work, instead of occasionally depriving them of the margin, which turned out for the best). This means that if I had started 3 weeks ago instead of 5 weeks ago, with my 4k, I would have blown out by now. But even I would have blown out by last Friday. No - what am I saying?! I would have blown out after just one week of trading, because it lost over 2k and I can't keep trading with less than 2k.

Think about it, and how weak and easily sinkable was my ship.

It is by some sort of miracle that I am still sailing my ship. I survived the automated losses, and I even survived and made money from my compulsive gambling. How much more luck can I have? Hopefully the systems will produce some money in the next two weeks. Let's hope, hope, hope. Mentally I can't take much more of this drawdown.

 

[Yamato]

Canon 1 a 2 from J. S. Bachs Musical Offering - Reversible Evolution - YouTube

 

[Yamato]

GeoGebra applets

Point Slope Worksheet
Probability Venn Diagram: Rectangle
Método de montecarlo para estimar una probabilidad
Normal bilateral

From:
Random walk and some statistics



Does it remind me of something? Yeah, my portofolio's forward-tested equity line. No wonder: it's got the same 60% chance of winning, with wins maybe a little bigger than losses.

 

[Yamato]

At the moment I am struggling with this:
AP Statistics Tutorial: Student's t Distribution

I've gathered some knowledge but I need to do it slowly, because it's not going to work otherwise.

Here's a video:

Student's t distribution - YouTube


Here's a wolfram demonstration:
Wolfram Demonstrations Project


Another good video:

95% Confidence Interval - YouTube


[...]

Still struggling. After one hour. This is the best video, finally:

t-test critical value approach - YouTube
ttest pvalue - YouTube

Problem is I don't know what I need it for, and it makes me fall asleep. But if I do not understand at least 50% of this lesson, then I can't move on.

This is new for me: taking it one step at a time. In the past, I would have given up at the first try, after seeing some unclear explanation. Now I know that quantity is quality so I just keep on going, without ever quitting or feeling retarded. Doing those thousands of exercises has given enough confidence to make me keep going despite the frustration of sometimes not understanding or even forgetting things I learned and understood before. That's what you get by solving about ten thousand problems: confidence.

My intelligence is the same as before (four months ago), but my confidence is totally different, and this in itself makes me more prone to learning and understanding and therefore more intelligent. So, all other things being equal, a confident person is more intelligent than an insecure one. That's why parents and teachers who discourage children/students do a really bad thing. I've had one of those critical fathers who do nothing but saying "no, no, no", and instead the right method if you want to be with someone whom you want to understand you, is to tell them "yes... good... right", regardless of whether they're understanding or not. Because confidence produces intelligence, understanding, learning.

That's why it's so bad to be in a classroom, where there's always going to be a student who gets to the answer before you and makes you feel stupid, not just you, but the rest of the class, thereby potentially destroying everyone's confidence. School sucks.

And so, as my confidence will hold and will keep me going, knowing that i'll understand it little by little, I will keep watching dozens of youtube videos and reading dozens of tutorials, without ever feeling dumb. I will keep doing that, until I'll understand at least 50% of this mother ****ing boring and at the moment useless crap. And then I'll move on to the next mother ****ing boring and at the moment useless lesson. In this ****ing tutorial there's just too much ****ing crap. As i say endlessly, it is not a tutorial but a glossary disguised as a tutorial. And glossaries do not get read from cover to cover. Everyone knows this. So I am going to sue these mother ****ers for getting me started on this thing, by tricking me and calling it "tutorial".

27 lessons to go. I really hope I don't give up.

Then, when i'll finally end this ****ing boring tutorial (err... glossary), I'll start reading the book by ralph vince on money management.

I better not get a heart attack after all this work and before turning profitable.

 

[Yamato]

interrupting the AP Statistics "tutorial" on my 40th lesson with 27 to go

**** this. I am not losing any more of my eyesight on this crap. I will move on. I've tried hard enough. I am moving on to the next lesson:
AP Statistics Tutorial: Chi-Square Distribution

Which is even more useless. But I'll give it a try, just as the previous one.

[...]

**** the rest of the tutorial. I have given them not one but 30 chances. I've worked on their crap for over 2 months. **** them all. I am moving on to something more interesting and I will come back if I need something from this mother ****ing glossary disguised as a course. **** them all.

I don't need to learn the history of the mother ****ing universe to trade my systems.

The next thing will be The Mathematics of Money Management by Ralph Vince.

I will write a note to remind myself where I got on the evil "tutorial", just in case I find the inspiration to resume it.

From now on, I'll only read as I feel inspired, without a pressing schedule. On a regular basis, I'll only keep doing the khan's review exercises.

Ok. I am doing their ****ing exam:
http://stattrek.com/AP-Statistics-4/AP-Statistics-Practice-Exam-1.aspx?Tutorial=AP

[...]

Ok, I got the first 5 problems right. This is what I like: exercises. At least I am learning things in order to use them for exercises. I get some sort of gratification. There's nothing worse than having a bunch of notions jammed down my throat, no reward, no tests, no nothing. You mother ****ers.

Ok, I'm going to take a break, and I'll keep doing the whole test in the next few days. And, as I'll go along and need them, I'll go back to those 27 lessons I skipped. Mother ****ers.

 

[Yamato]

MC Hammer - U Can't Touch This - YouTube

The god of probability better give me some automated profit next week after all this work I've been doing.

Everyday is so wonderful
Then suddenly
It's hard to breathe
Now and then I get insecure
From all the pain
I'm so ashamed

I am beautiful
No matter what they say
Words can't bring me down
I am beautiful
In every single way
Yes words can't bring me down
Oh no
So don't you bring me down today

Christina Aguilera - Beautiful - YouTube

 

[Yamato]

trying to improve rome's routine

At the moment, there's no way to quit my job in sight - because I don't see a way to make enough money to quit my job and have my parents' blessing (and I need it, because I'll be living in their houses). So I am thinking of ways to make my routine more acceptable by lightening it up. Otherwise I run the usual risk of trying to make a lot of money quickly, and blowing out my account as a consequence.

So from now on my motto has to be: lightening up in order to avoid rushing things.

Yeah, because i could not identify any ways to speed up the money making, nor quitting my job. So I have to work on relaxing and accepting it for now. Especially now that it seems I have almost made it - i must not overstretch myself and stop working before the struggle is over. It's like when you're getting home and, after holding it for hours, you stop holding your pissing urges too soon and you almost end up pissing in your pants.

So now more than ever I need to devise methods and activities to lighten up and not take my urges out on my trading.

I've thought of these changes, but they're not going to be immediate - they need work to be implemented:

1 less pc
2 more tv
3 more taxi
4 more sleep
5 more clothes
6 more baths
7 swim (take a taxi to it)
8 movies (with whoever - but you're not paying)

Some of them are free. Some of them need to rely on some of the money made from trading - but only once 20k is reached.

I can't add women yet, because they make me unstable, weak, and because they're too expensive.

A big step forward was the mere realization that I can't speed up the money-making. And that I can't decrease my daily schedule of six hours, not because of the salary, but because the boss might not let me. Right now I am still useful to my office. If I worked just 5 hours, they might stop relying on me, and that's the premise for being moved to another office with new colleagues and a lot of related stress. So I either quit my job, or I can't change anything. And therefore I can't change anything.

It's unlikely that i'll get fired, and it's unlikely that working together with my bargaining friend will get me anywhere.

So my three watchwords will have to be these:

1. less pc
2. more tv
3. more sleep

Basically, more relaxation.

Taxi Driver - Soap opera scene - YouTube

Then as more money will be made, I have to try to come up with new ideas to invest with trading or outside trading, in order to speed up the quitting of my job.

It might even be something like... something that will impress my parents and show them that I have made money. But I don't know what yet.

But before I waste any money, I must repay my debt with my bank. I must not do like I did in the past two years, when, still having a debt with my bank, I was wasting my money by treating colleagues and friends to the restaurant whenever I made money with trading.

That's not going to happen, ever again. Restaurants are a stupid waste of money - let alone paying for everyone else's bill.

...

I need to focus on relaxing. Once again: less pc, more tv, more sleep. More relaxation. And in ways that relax my eyes in particular. Like... playing video games would not be the right type of relaxing. Writing on this journal is an exception because it doesn't take me that long to write a post. But yes, it would be better to talk to a "friend" (so to speak, because I don't believe in friends really) than to write here.

I need to improve my routine and habits here, otherwise I'll be tempted to speed up my trading with discretionary tampering and sooner or later i'll blow out my account. Yeah, the miraculous discretionary trading of the last 5 weeks was very useful, because of having such a low capital, but it was a huge gamble, and it's definitely not worth the risk in the future, given the level of capital achieved.

[...]

The way I am functioning right now, with my present level of frustration, I don't even know if I can get through the day without placing a discretionary trade that might blow out my account. It's very easy to do so. You enter on let's say CL, then it goes against you, you open another contract, then another one, and in just 24 hours you can blow out the account. That's how easy it is for me to blow out my account - it happens as fast as clicking the mouse a few times.

With all these unprofitable automated weeks (i know it sounds incoherent because the past should not affect the future - but it feels right) and the capital intact I have a great chance of making it happen right now.

The only thing that can stop me, in the next 3 months, from getting away from the dangerous area, and reaching 20k of capital is if I do discretionary trading. Or if I scale up further. Then i'd screw myself.

Now I should just do nothing for the next 3 months, and letting it happen. At the same time, I should relax. All these things can help each other and they're not in conflict at all.

I need something stronger though. Because I know I won't change... not even the little bit I need to change, such as watching tv instead of using my laptop and sleeping more. It's so easy and yet I won't do it. I know myself. I am not going to do this.

I need a person to make me do this.

But I am afraid of getting other people involved with me, because I know how much I've let people down before. Women and friends. It's because I see people as a burden. Usually, a friend calling me once a month is a burden, let alone a friend calling me once a week, to get together and do something.

I need a friend, so I should call James Taylor... how does he sing... "You just call out my name, and you know wherever I am, I'll come running, to see you again...

James Taylor & Carole King - You've Got a Friend (HQ) (Uploaded by Tornike Ivanishvili) - YouTube

When you're down and troubled
And you need some loving care
And nothing, nothing is going right
Close your eyes and think of me
And soon I will be there
To brighten up even your darkest night

You just call out my name
And you know wherever I am
I'll come running to see you again
Winter, spring, summer or fall
All you have to do is call
And I'll be there
You've got a friend

I need a friend. But not those I already have. I need a new friend. How do I meet this friend?

I need to find a friend quickly. Otherwise I'm going towards self-destruction, both mentally, physically and financially.

Forget the new friend, because that ain't gonna happen either.

Let's focus on existing friends.

1) F.E.
Can't call him because I refused to meet him too many times.

2) D.L.
He's restless, so no.

3) G.P.
Good. I could call him.

4) former neighbor
Can't call her because tries to manipulate me into treating her to dinner, and she'll achieve it, if I call her. If instead I wait till she calls me, I can get her to come here so we save.

5) A.C.
Too negative, so not a good idea.

6)...
Here in rome, I've got no other friends that I'm in touch with. All others I've lost touch with years ago.

Ok, so what do I do... call GP? I can't see him every day to keep me busy and unable to engage in discretionary trading.

What do i do?

I really could use a girlfriend.

But too complex and too expensive. I really don't know what to do.

The other thing I could do is stay out of the house, so I definitely can neither trade nor spend time in front of the laptop.

I can't stay at work, because I am on part-time.

Man, if I hadn't wasted all the money I've wasted, by now I'd have hundreds of thousands and none of these problems I'm having. For all these dinners... damn. They were all useless. Spending 500 dollars a month in dinners. Totally ridiculous. By now i'd have almost 50k, and I'd have invested them, too, so obviously much more.

But let's focus on now.

What do i do...? What do i do...?

To stay outdoors... what do I do?

Go to the movies. And that's fine.

I can't walk the dog or similar, because of course I don't have any pets. Otherwise that'd be a great excuse to hang out in the street. What the hell do i do in the street without a purpose?

I am not one of those who go to the bar. Not by myself for sure.

What do i do?

Will it come natural, a social activity? After removing people for so long?

I could use some sociability now.

The studying is not done, so I have to get back to work, but too much work, especially at the computer, endangers my future, because I'd end up doing discretionary trading.

What do I do?

Obviously I can't just keep on writing this journal all day long...

Forget swimming - that's even too complex. What do i do? Do I go to the vatican, st peter's square? Trying to meet some japanese nuns?

I am tired but I can't sleep. Social life, going out, sports... it would all help both my sleeping and my self-control as far as trading.

If instead i stay home and do nothing, then I end up with compulsive gambling.

And i can feel it - this will be the time i blow it out. My luck has run out.

Too many options and all suck.

But i have to pick one. I can't just discard them all and keep doing what I've been doing.

Friends won't come here often enough to keep me from trading. Girlfriend is too complex and I can't gamble with someone's feelings just to keep me from trading, and if it's otherwise, then i'd lose control of my life.

So what? Go to the movies? Go to the movies will be. There's these movie theaters near my house...

Cinema Adriano
Cinema Eden Film Center
Cinema Azzurro: Programma

It doesn't matter what they're showing. I need to go there once a day, so I'll end up watching everything. Adriano is too crowded isn't it, so I'll go to Eden first.

The other one didn't seem to have movies at first, because I looked here:
¤ Cinema Azzurro Scipioni (Roma)

So now I replaced the link above, and it might be the best of all three.

Now... i am shy and it's going to be a struggle to go into it, but I'll try. After writing about it here, I'll have to give it a try.

Taxi Driver - "Dirty movie" scene - YouTube

 

[Yamato]

starting to read "The Mathematics of Money Management by Ralph Vince"

I am going to start reading The Mathematics of Money Management by Ralph Vince, because I happen to have the inspiration. At the same time I will keep doing the review exercises at Khan's and the practice exam at Stat Trek's, where I already got 7 problems correct:
Advanced Placement (AP) Statistics Practice Exam

I will start Vince right here, with just one sentence at a time, because it's hard. I know it's hard. So let's get started.

Initially I was going to read Markowitz, but since Vince himself has several pages on Markowitz, I opted for Vince instead.

Preface and Dedication

The favorable reception of Portfolio Management Formulas exceeded even the greatest expectation I ever had for the book. I had written it to promote the concept of optimal f and begin to immerse readers in portfolio theory and its missing relationship with optimal f.

Besides finding friends out there, Portfolio Management Formulas was surprisingly met by quite an appetite for the math concerning money management. Hence this book. I am indebted to Karl Weber, Wendy Grau, and others at John Wiley & Sons who allowed me the necessary latitude this book required.

There are many others with whom I have corresponded in one sort or another, or who in one way or another have contributed to, helped me with, or influenced the material in this book. Among them are Florence Bobeck, Hugo Rourdssa, Joe Bristor, Simon Davis, Richard Firestone, Fred Gehm (whom I had the good fortune of working with for awhile), Monique Mason, Gordon Nichols, and Mike Pascaul. I also wish to thank Fran Bartlett of G & H Soho, whose masterful work has once again transformed my little mountain of chaos, my little truckload of kindling, into the finished product that you now hold in your hands.

This list is nowhere near complete as there are many others who, to varying degrees, influenced this book in one form or another. This book has left me utterly drained, and I intend it to be my last.

Considering this, I'd like to dedicate it to the three people who have influenced me the most. To Rejeanne, my mother, for teaching me to appreciate a vivid imagination; to Larry, my father, for showing me at an early age how to squeeze numbers to make them jump; to Arlene, my wife, partner, and best friend. This book is for all three of you. Your influences resonate throughout it.

Ok, this was easy!

But I am wondering: shouldn't I start from his previous book, which seems to be shorter? It's called "Portfolio Management Formulas" and I've already got it.

Let me think...

Year of writing? Topics covered?

"March 1992" for the preface of "mathematics" and... no, wait: I don't have his other book.

Ok then let's forget the other book and keep reading this one, on to the Introduction:

Introduction

SCOPE OF THIS BOOK

I wrote in the first sentence of the Preface of Portfolio Management
Formulas, the forerunner to this book, that it was a book about
mathematical tools.

This is a book about machines.

Here, we will take tools and build bigger, more elaborate, more
powerful tools-machines, where the whole is greater than the sum of the
parts. We will try to dissect machines that would otherwise be black
boxes in such a way that we can understand them completely without
having to cover all of the related subjects (which would have made this
book impossible). For instance, a discourse on how to build a jet engine
can be very detailed without having to teach you chemistry so that you
know how jet fuel works. Likewise with this book, which relies quite
heavily on many areas, particularly statistics, and touches on calculus. I
am not trying to teach mathematics here, aside from that necessary to
understand the text. However, I have tried to write this book so that if
you understand calculus (or statistics) it will make sense and if you do
not there will be little, if any, loss of continuity, and you will still be
able to utilize and understand (for the most part) the material covered
without feeling lost.

Ok, so far so good. I will take a break for a while now. Let's be satisfied and happy that I finally got started on what was the final of objective (risk and money management) of four months of math and almost ten thousand problems solved at Khan's and at other websites.

Obviously I am not going to need sine and cosine to understand this book (nor most of the material I covered), but I made myself do it, because it was not practical to skip sections at khan academy, and it was part of the high school curriculum. I went from being a student who stopped studying math in junior high school to a student who has a thorough knowledge of high school math, and who's confident and not afraid of formulas.

Congratulations to myself. Thanks. You're welcome, you deserve it. Let me shake your hand.

...

This math journey began on October 3rd, 2011:
http://www.trade2win.com/boards/trading-journals/85510-my-journal-2-a-635.html#post1691910

Ok, that's it. I suck. I need to gather my remaining forces and embark on a mission to understand formulas.

This whole paper is full of formulas. They're probably relatively simple, but it's like a new language for me.

So I will look for a "formulas for dummies" dictionary or glossary or similar. I am totally lost in this language, and there is no way I can finish this thing if I don't first learn the language he's speaking.

The concepts he's using are not new at all. The problem is I get lost in his formulas.

If I can get past this ignorance/phobia of mine, I will solve all my other formulas problems. And I will be able to accomplish this task, and follow through in my nobel prize route rather than taking another less preferred and less trusted route (trading vendor route). I know the nobel prizes are not out to screw me or scam me for sure. I cannot say the same about the vendors.

Let's start the journey, and let's go back to highschool, and to what they never taught me there. Let's study my enemy:
Formula - Wikipedia, the free encyclopedia

[...]

That's the day I decided to "go back to high school". Four and half months ago. And now I feel finally ready to face these money management books, which means I am ready, because if you feel ready, if you have that confidence, half the job is done. You'll keep reading and trying until you figure it out. If you feel it's hard, then it will be too hard. Half of the job was restoring my confidence, which was gone in the first year of high school (I was skipping classes, not doing homework, they were going too fast, my father was busting my balls with extra homework - I basically quit studying when I was 14... I mentioned this before).

October 3rd came one week after I ended the trading with the investors, because we had exceeded the expected drawdown of 40k (we had lost all profits made, which amounted to 37k, plus another 11k).

I had spent the whole month of September wondering what was wrong and what should be done, had investigated markowitz and other portfolio theory authors, and eventually had come up to the conclusion that I was not capable of reading those books. Maybe I am just as capable now as I was then (four months ago), but now I am confident about math and formulas, so this makes a huge difference. The extra knowledge I have may not even be much. I do have a lot of extra knowledge relative to four months ago but most of it is not related to those formulas. But the confidence gained by having solved 10 thousand problems - that's what will make the difference. This, among the other things I accomplished in the last four months, is what will make the difference:

 

[Yamato]

Free funny pictures, photo pranks & jokes, fun comic albums, humor ? See Now ? SeeNow.com

 

[Yamato]

difference between being stupid and intelligent

Still reading the first few lines of Vince's Introduction and I have already made my first encounter with complicated math:

Certain mathematical functions are called upon from time to time in
statistics. These functions-which include the gamma and incomplete
gamma functions...

But this time I am not scared, unlike four months ago. This time I just look it up:
Gamma function - Wikipedia, the free encyclopedia

In mathematics, the gamma function (represented by the capital Greek letter Γ) is an extension of the factorial function, with its argument shifted down by 1, to real and complex numbers...

I still don't understand it, which means I still do not know enough to understand it. But this time I don't get scared by the fact that, even after looking it up, I don't understand it, because I know the problem is from ignorance and not from stupidity, and the mere fact of knowing and thinking this, makes me immune from the risk of stupidity itself, which is the attitude of thinking "I am too stupid to understand it". Thinking you can't understand something is the premise for stupidity. Thinking you don't know enough to understand something is the premise for knowledge and understanding. Big differences here.

Two different people both don't understand something and for the same reason (ignorance), but the one who thinks he's too stupid to understand it will never understand it. The one who thinks he's too ignorant to understand it still will preserve the pride, confidence, and chance to understand it in the future (when he'll have gathered the necessary knowledge). So basically the difference between being stupid and intelligent lies in this: realizing that you don't understand something because of ignorance rather than stupidity. In other words, also, what makes you stupid is underestimating your intelligence, and what makes you intelligent is having confidence in your intelligence. Attributing your lack of understanding to the wrong cause blocks any further understanding and learning (because you don't even realize that ignorance is what keeps you from understanding something).

So now we might even debate on whether people are confident because they're intelligent, or rather, as I think, people are intelligent because they're confident.

Furthermore, since knowledge brings understanding, people understand things because they have knowledge to begin with, and then they gain confidence, and then when they gain confidence they have the right attitude of never thinking they're too stupid to understand something, but always "too ignorant to understand something", and this is the key for your learning and understanding to go hand in hand, and to continue and never stop.

What sometimes happens in school is that your confidence is destroyed, and they get you to think you're stupid rather than just ignorant, just because there's other more knowledgeable classmates who get to the answer faster than you, and either they or the teachers make you think that rather than practice or knowledge the cause of this is that you're stupid. That's why school is so bad: because these unfair comparisons lead children to think they're stupid and destroy their confidence - there will always be someone faster than you at every subject, and he will always destroy your confidence. Distance learning, like Khan and the internet, allow you to build up knowledge and confidence without outside interference and discouragement.

That's one of the reasons I started a new journal with the "only posts from contracts" options. I was getting a lot of feedback from these evil mother ****ers telling me I was doing basic math and that it wasn't going to get me anywhere, reproducing the same exact problem that goes on in the classroom.

Another good point and the summary of this is that I was "stupid" as far as mathematics, until recently, because school had me feel that way, whereas now if I don't understand something I just feel ignorant, and therefore I am all of a sudden "intelligent", because even if I don't understand something I still have the tools - learning - that will make future understanding possible.

[...]

Ok, let's keep reading:

...These functions-which include the gamma and incomplete
gamma functions, as well as the beta and incomplete beta functions-are
often called functions of mathematical physics and reside just beyond
the perimeter of the material in this text. To cover them in the depth necessary
to do the reader justice is beyond the scope, and away from the
direction of, this book. This is a book about account management for
traders, not mathematical physics, remember? For those truly interested
in knowing the "chemistry of the jet fuel" I suggest Numerical Recipes,
which is referred to in the Bibliography.

Mmh, he says "mathematical physics"... is he a physicist?

Who is Ralph Vince?

I could not find a biography, except this one but it's not him:
Ralph Vince - Wikipedia, the free encyclopedia

This guy is actually Italian, the football player.

The trading author, I found his website:
Ralph Vince : Home Page

But once again there's no biography.

He's got a... google group, where he answers everyone's questions:
Leverage Space Trading | Google Groups

He even wrote on elitetrader.com:
Forums - View Profile

All right, the former neighbour is coming for dinner, so I have to resume tomorrow. It'd be interesting to read what he wrote on elitetrader.

I am starting to like this guy. The way I like Khan and others who are good at teaching me things.

Here's a good thread on EliteTrader.com where I learned that Ralph Vince was a member:
Forums - Notable ET Celebs

I feel like a new person - someone who is reading a book titled "The mathematics of money management". I feel good about myself. Yes, I go to work with stupid people, but I am doing something special, I am getting somewhere. I am not like the rest of them.

I am not just a bank employee, and I am not just a trader - I am becoming a fund manager. I am like a company. I have a company in my own brain, in my own little excel workbook. It's all very compact, but it's all there, miniaturized, including my capital. So, don't stop me now, because I am having a good time.

Queen - 'Don't Stop Me Now' - YouTube

[...]

Let's read some more:

I have tried to cover my material as deeply as possible considering
that you do not have to know calculus or functions of mathematical
physics to be a good trader or money manager. It is my opinion that
there isn't much correlation between intelligence and making money in
the markets.

That's interesting because after all my talk about what intelligence is the author equates intelligence with knowledge of math. Even before my reasoning on this post, I had never thought intelligence meant a knowledge of math. Nor did I think that intelligence was merely an attitude. Let me think... I had always thought that intelligence was the ability to understand things given a certain amount of knowledge. So we can't assume that someone who knows calculus, even a professor of calculus is more intelligent than a taxi driver who doesn't know any. We have to measure two people with the same amount of knowledge and see how well they employ it and then we find out who's more intelligent. Intelligence is therefore... the ability to use one's knowledge to solve problems. Instead, knowing calculus could never be defined as intelligence, as he does. But let's keep reading because overall I like what he says, and I like his tone.

Reading further down...

Still reading the Introduction. This part is quite good:

Since the publication of Portfolio Management Formulas I have
been asked by some people why I chose to write a book in the first
place. The argument usually has something to do with the marketplace
being a competitive arena, and writing a book, in their view, is analogous
to educating your adversaries.

This is the question I asked and that I read others ask, endlessly. Why teaching people how to trade or portfolio theory? What does he answer?

The markets are vast. Very few people seem to realize how huge today's
markets are. True, the markets are a zero sum game (at best), but
as a result of their enormity you, the reader, are not my adversary.

The markets are so big that it doesn't make a difference. Well, dude, portfolio theory in itself is not enough, so I buy this explanation. But if I let out a secret about a trading system, it might stop working soon. Let alone if you are a famous author. But maybe portfolio theory ain't a big deal. I mean, it's of vital importance, but its secrets are not as vital as a profitable trading system.

[...]

Ok, I understood everything he says and got to this section (excluded): "SOME PREVALENT MISCONCEPTIONS", on page 6.

 

[Yamato]

The umpteenth asshole yesterday rated my journal one star. What am I going to do? Let's hope for some profit to compensate this frustration of mine. If I get rich enough, I'll pay people to rate me 5 stars. If I get richer, I'll pay a hit man to track down the assholes who rate me one star.

[...]

NG is falling but not enough to buy another QG contract (this time expiring in April). I'll wait until it'll reach 2.5 (if ever).

 

[Yamato]

I've done khan. I've done one question from here, the evil "AP Stats" glossary-tutorial, with a really bad teaching methodology (but comprehensive statistics material):
Advanced Placement (AP) Statistics Practice Exam

Now I am going to print a few pages from the Ralph Vince book, and then I'll read them. I've had a lot of work today, so I am tired. Still one and a half hour to go.

Yesterday I got quite drunk with that guest I had. I just used my restaurant vouchers so it was like a free dinner. It's too complex to get a refund for those vouchers.

The one-star rating is still burning.

But I know I am beautiful, no matter what they say:

 

[Yamato]

On page six of the Introduction he says:

Preparing for the worst is quite difficult and something most traders never do. Preparing for the worst, whether in trading or anything else, is something most of us put off indefinitely. This is particularly easy to do when we consider that worst-case scenarios usually have rather remote probabilities of occurrence. Yet preparing for the worst-case scenario is something we must do now. If we are to be prepared for the worst, we must do it as the starting point in our money management strategy.

This is quite disturbing to me, because the worst is blowing out and there's nothing that you can do to prevent the worst from happening. After studying some probability, I have realized that you can never be sure that you will not blow out your account, no matter what you do, no matter how good your systems are, because you can just keep on getting unlucky, trade after trade.

So I suppose you cannot prepare for the worst, or the worst is this: what do you do if you keep getting unlucky? Well, my answer, right now, is that I do not have an uncle point and that I will simply blow out my account, going from 9k to 2k, after which I can't trade any longer. So yes, I am prepared for the worst: i am prepared to blow out my account.

But what he might be getting at is to be prepared in a different way, a way to not get hurt. So if that's what he means, then he either means "what's your uncle point?" or he doesn't have his probability theory right, because the worst means you just keep on losing trade after trade for the rest of your life, and there's no way to avoid that, it's just chance - it's unlikely, but it could happen. You could be the best trader in the world and lose on every single trade for the rest of your life. The only way to be prepared for this "worst" (which is the only real "worst" by any dictionary and logic) is just to know how much you're willing to lose before you stop trading.

Oops, wrong, and I am glad. Here's what he says next:

Finally, you must consider this next axiom. If you play a game with unlimited liability, you will go broke with a probability that approaches certainty as the length of the game approaches infinity. Not a very pleasant prospect. The situation can be better understood by saying that if you can only die by being struck by lightning, eventually you will die by being struck by lightning. Simple. If you trade a vehicle with unlimited liability (such as futures), you will eventually experience a loss of such magnitude as to lose everything you have.

Granted, the probabilities of being struck by lightning are extremely small for you today and extremely small for you for the next fifty years. However, the probability exists, and if you were to live long enough, eventually this microscopic probability would see realization. Likewise, the probability of experiencing a cataclysmic loss on a position today may be extremely small (but far greater than being struck by lightning today). Yet if you trade long enough, eventually this probability, too, would be realized.

So he agrees with me that the worst-case scenario is that you just keep losing and losing, but that it probably will not happen during our lifetime - if we do things right.

Yeah, we're on the same wavelength, and he understands about this issue even more than I do, so i am in good hands:

There are three possible courses of action you can take. One is to trade only vehicles where the liability is limited (such as long options). The second is not to trade for an infinitely long period of time. Most traders will die before they see the cataclysmic loss manifest itself (or before they get hit by lightning). The probability of an enormous winning trade exists, too, and one of the nice things about winning in trading is that you don't have to have the gigantic winning trade. Many smaller wins will suffice. Therefore, if you aren't going to trade in limited liability vehicles and you aren't going to die, make up your mind that you are going to quit trading unlimited liability vehicles altogether if and when your account equity reaches some prespecified goal. If and when you achieve that goal, get out and don't ever come back.

There's a lot to read about this book here:
http://www.amazon.com/Mathematics-M...iewpoints=1&sortBy=bySubmissionDateDescending

I'll read these reviews on the Vince's book when i get home.

 

[Yamato]

Customer Reviews on Amazon

Amazon.com: Customer Reviews: The Mathematics of Money Management: Risk Analysis Techniques for Traders

Only 11 reviews to read. But I must first stress out that Larry Williams and John Bollinger recommend to read his books, so he's clearly not an idiot:

"If Ralph Vince writes it, I read it...every word, every thought this guy has produced has led me to additional market profits. Money management is clearly the way to the kingdom of wealth in the investment world and Ralph gives you the keys in this book."
--Larry Williams, trader, fund manager, and author of Trade Stocks & Commodities with the Insiders: Secrets of the COT Report and Long-Term Secrets to Short-Term Trading

"I have known Mr. Vince for many years and he is quite simply one of the brightest minds in the industry. Do not miss this opportunity to share his insights into the investment process".
--John Bollinger, CFA, CMT, author of Bollinger on Bollinger Bands.

Ok, now on to the reviews instead.

They are all very interesting and that's why I always read reviews before reading a book. But I cannot quote all 11 reviews, because i already provided the link and so it would not make sense.

So I'll quote the ones that strike me the most.

I just came up with an awesome recipe I created, with these ingredients:
Smoked salmon - Wikipedia, the free encyclopedia
Salted butter
This bread, on both sides

It tastes great. It's my copyright or whatever. You can't eat it without paying me a few dollars. Then I drank some of the wine left from yesterday so I am tipsy... on to the reviews.

This is definately not a book that can be read in a few days, unlike the majority of books I've encountered on trading.

...some ideas are very challenging to formulate into a statistical package...

...I am quite confident in the fact that Vince makes a mistake with one of his partial derivatives in the introductory chapter on E-V Theory (when employing the Lagrange method)...

Gee, not my piece of cake for sure, but until things will be comprehensible I'll keep reading Vince's book.

The book is well written, reflecting level of education. The author is no dummy.

However, the community is better served to realize that there is a divide between Modern Portfolio Theory, followers of quantitative methods ad infitum, and those followers of Practical Portfolio Theory, who are more or less followers of the Edwards & Maggee/Wyckoff schools of trading thought.

My recommendation is to identify to which school of thought you belong and simply lay to rest the other quack books that come along.

Very important points: what school of thought do I belong to? "Practical Portfolio Theory" is appealing to me, because it sounds practical.

Paranoid Android (Radiohead) on violin & piano - Entropy Ensemble - YouTube

I must have close to a 100 trading books and this one is a gem. As Elder points out in one of his books there are three legs that support successful trading: Trading Strategy, Psychology and Money Management. Optimal F which is well explained in this book is the best measure of your Risk/Reward. Knowing the optimal f of a trade allows you to compare apples and oranges. I can tell if trading a stock option with a potential return of 1000% is better than trading a stock with a potential return of 20%.

I have an extensive math background, but I cannot get convincing quantitative results in Excel using his presentation, even after re-deriving for myself all the equations he deigns to show us. Perhaps if I had a futures trading background I would find his prose easier to follow, but I would have been much better off with the equations, in an appendix at least.

The guy with an "extensive math background" (what I dream of) doesn't find the book satisfactory. And he's not the first one. Interesting.

Overall (I read all reviews) what strikes me is that the book is very famous but there aren't that many reviews and practically none of the readers is fully satisfied.

So I'll read it with a grain of salt, and i'll read it because this is the best that I could find so far. At the moment, I don't think it's perfect.

Paranoid Android (Radiohead) on violin & piano - Entropy Ensemble - YouTube

 

[Yamato]

more on WORST-CASE SCENARIOS AND STRATEGY

While this Big Brother bitch host is hosting the Italian Big Brother evening, and yelling in the background, and sounds like a dog barking, I've been reading the last few paragraphs of Vince's introduction.

And I've got bad news. The whole problem Vince has opened m eyes about is the concept of "unlimited liability":

We've been discussing worst-case scenarios and how to avoid, or at
least reduce the probabilities of, their occurrence. However, this has not
truly prepared us for their occurrence, and we must prepare for the
worst. For now, consider that today you had that cataclysmic loss. Your
account has been tapped out. The brokerage firm wants to know what
you're going to do about that big fat debit in your account. You weren't
expecting this to happen today. No one who ever experiences this ever
does expect it.

Indeed, I've been talking about losing endlessly and finding a timing to stop trading, if you're the unluckiest person in the world, but that was nothing compared to an even worse case scenario: you lose more than you have.

I had forgotten and never fully realized that despite the margin call procedure (with its immediate automatic liquidation), you could still lose more than you have on your account.

This is very very unlikely, but as he says here, the only way to avoid that problem is to either "quit trading unlimited liability vehicles"...

Now, take that sheet of paper with your contingency plans (and with the amount at which point you will quit trading unlimited liability vehicles altogether written on it) and put it in the top drawer of your desk.

...or to have a huge account, which I do not have.

Indeed, what I stand to lose, with the real worst-case scenario, by trading one NG contract (as I've been doing for years) is not just my small account, but 24k. And when I trade the YM, I stand to lose... 5 dollars for every point from 13,000 to zero. Which is... 65,000 dollars. Yes, that much, each time I trade a YM contract.

So in fact it is not really an unlimited liability because the end of your liability is zero. If instead you are short on anything, then it is indeed "unlimited".

I guess I'll never play things this safe - I will never wait to have 130k before trading one YM contract. If I want to make things happen within my lifetime, I also have to risk that hypothetical debt with IB.

But Vince now made me realize that my mother is not far from wisdom when she says that I can't quit my job even if I have 100k, even if I have made 500k, because any money I am trading with cannot be considered money I made. She, and other relatives, said that the money is safe only once you are not investing it, and once it is not even in the bank, and you've bought apartments with it and you're getting paid rent... and basically I should have picked my parents better, richer ones, because this is not going to happen, unless I behave recklessly both according to my mom and to Ralph Vince:

Hope for the best but prepare for the worst. If you haven't done these exercises, then close this book now and keep it closed. Nothing can help you if you do not have this foundation to build upon.

I can't prepare for the worst. It's more likely that I'll die before the worst happens. The worst is death, so I am going ahead with my reckless plan of trading without having the capital to back up losses that could happen if a future I am trading goes to zero. Goddamnit.

Nonetheless, I will still read the rest of his book. I will read his book and build upon the foundation that the worst risk is death. My money management, as I was reminded throughout this introduction, is based on the awareness of my own death. I am aware. Je suis aware.

Everyone made fun of this philosophical talk, but he was really talking about risk and reward. Being aware of risk and reward, and making the best of what you got.

[...]

There: I've started the systems for tomorrow. Let's hope the god of randomness is on my side.

 

[Yamato]

I finished the Intro, but I'll have to go back to one of those reviews by a reader, because it intrigued me.

Here's what I found interesting at the end of the Intro, but also connected to what the reader said:

OPTIMAL TRADING QUANTITIES AND OPTIMAL F
Modern portfolio theory, perhaps the pinnacle of money management
concepts from the stock trading arena, has not been embraced by
the rest of the trading world. Futures traders, whose technical trading
ideas are usually adopted by their stock trading cousins, have been reluctant
to accept ideas from the stock trading world. As a consequence,
modern portfolio theory has never really been embraced by futures
traders.

He concludes the sentence with: "...never really embraced by futures traders". This is a good time to try and see where Vince and his theories fit, even though the drawer seems the right drawer.

But I do want to know what I am about to get into, and the right time to find out is before I get into this huge thing. I don't have any time to waste. If I can find a better use of my time, i'll drop this book and get another one.

The reader I was mentioning is B. Brooker "bbrooker81":
Amazon.com: Customer Reviews: The Mathematics of Money Management: Risk Analysis Techniques for Traders

He says:

The book is well written, reflecting level of education. The author is no dummy.

However, the community is better served to realize that there is a divide between Modern Portfolio Theory, followers of quantitative methods ad infitum, and those followers of Practical Portfolio Theory, who are more or less followers of the Edwards & Maggee/Wyckoff schools of trading thought.

My recommendation is to identify to which school of thought you belong and simply lay to rest the other quack books that come along.

I am going to try to find out, as he says, what these schools of thought are and which one I like better, and proceed in that direction.

As I was looking to find out who B. Brooker (the writer of the review) is, I came across another trader and author, with a similar name, but without the "r": Rob Booker. He seems just as smart:

Wallabot Automated Trading Webinar - YouTube

He made a lot of good videos on automated trading systems. Here's another one:

How To Test A Trading Method, Part 1 - YouTube

How do I know they're good? I noticed they have as few as 100 views. That means that he didn't even promote them. So he's not out to sell anything, despite the quality of his material.

Anyway, let's keep moving.

...

I have been browsing for a bit, googling. The problem of portfolio theory is that when you want formulas, and not rule-of-thumb you're asking for academics, but academics also bring in a lot of bull****, maybe too much bull**** for me to handle.

But I might be able to find someone who's practical, not an academic, or at least not writing for academics, and he has read and sifted through all this bull**** - I can't read a paper that spends 10 footnotes per page referencing other academics' work.

E.P.Chan might have been the perfect fit (just the right amount of science), but somehow I did not find what I was looking for in his book on automated trading.

I think I need someone who trades, and I get a feeling that all these guys writing books do not trade.

So I am here scratching my head quite a bit.

These guys might be on to something:
http://www.nag.co.uk/doc/techrep/Pdf/tr2_00.pdf

Then we got the maslowian portfolio theory:
http://www.de-brouwer.net/phdb/docs/mapt.pdf

Then we got the "Practical Applications of Post Modern Portfolio Theory":
http://www.isectors.com/pdf/Practical_App_PMPT.pdf

Then the "Black–Litterman model":
http://kth.diva-portal.org/smash/get/diva2:10311/FULLTEXT01

Essays, papers, theses... scholars, academics... a sea of bull**** I am drowning in.

Ok.

What I will not do is keep on browsing and getting discouraged and give up.

I cannot learn much more by just browsing and browsing and going through dozens of papers by these guys. I cannot follow these students/academics (Vince is not one), who write their papers to impress the other faculty/academics. I need a book aimed at traders, whether it's by an academic or not.

I need to gain a better understanding of the subject. The best would have been to read someone who had read them all, and summarized them. This is not going to happen unless... unless I go to forums, specifically elite trader.

Let's do it.

I knew it was the right place - here it is:
Forums - Construct a good portfolio?

Black diamond is a ****ing genius:

This approach is correct in theory but the big problem is that you don't have the true mean, vol, and correlations, you only have estimates from your sample. Then when you optimize, you end up optimizing on the errors more than the true properties.

There are strategies used by quant funds to correct for this, google bayesian shrinkage or the Black-Litterman model. I discussed this in another thread, maybe with more details, but the bottom line is I don't think it is worth the effort to follow these methods precisely. The basic idea is you use the information from your optimization but consider it suspect and end up with something between the optimized weights and neutral weights.

The other big issue - you have to decide if you assume the inidividual strategies are stationary or if you think you can time them. The basic approach you mentioned assumes they are slowly time varying, so you are timing them in the sense that you assume recent history is your best estimate of the next-period characteristics. The other approaches that come to mind: (1) you assume they are really stationary and use all the data you can (an expanding estimation window instead of the rolling window) or (2) try to time them by building a model that generates predicted means,vols, and correlations based on some variables that capture the market state or strategy specific stuff.

I think unless you strategies are easy to time, you are probably best off equal weighting and spending your time on something else.

He sums it all up in a few lines - all the problems involved with creating a portfolio of systems. You'd be building something very precise on quicksand. What's the point of the precision of a portfolio according to the existing formulas if you only have an estimate of future performance? On the other hand, this is a cheap excuse for not doing all this work, and that's why I may be thinking this way. Or should I do as he says, allocate equal amounts of money to each system and then spend my time on something else?

Whatever the answer is, right now the best thing is do my searches on elitetrader for threads with "portfolio" in the title. So I'll do more of this.

More on that thread, always by the same black diamond:

...with all the uncertainty around your inputs you can do a lot of work for little or no gain.

He's saying once again: what's the point of fine-tuning your portfolio when there's so much uncertainty regarding its ingredients?

Damn.

That thread didn't say much more. I'll need to read a little more of the book by Vince, because my question of five months ago (long debate with bbmac) remains unanswered: how do I find a univocal way of allocating systems/contracts?

The big problem now is that I'm in the middle of the night, and I might not... i will not get enough sleep to be able to go to work tomorrow, and yet everyone is counting on me, because the boss is not there. What the **** do i do? I wish I could just do my work from home now and go back to sleep.

Here's another good thread, dead on target: Multi-system portfolio.

Not much here either.

Overall, I will keep reading Vince. And now I'll try to sleep.

 

[Yamato]

The History Of The Modern Portfolio

I am getting there, at my own slow pace. I just found this excellent article on investopedia:
The History Of The Modern Portfolio

What I have come to realize yesterday and today is that there are several schools of thought and before getting into any one of them, I should get the big picture.

I will quote the article above as i read it, and as i go along i will also list the good links I find on the subject. These are the links so far (I'll come back later to add more, for the next 24 hours, as long as the post allows).

GENERAL OVERVIEW OF PORTFOLIO THEORIES:
The History Of The Modern Portfolio
CFA Level 1 - Portfolio Management (boring but can be used as a good simplified glossary)

SPECIFIC THEORIES:
Modern Portfolio Theory (MPT) Definition | Investopedia
Black-Litterman Model Definition | Investopedia
Money Management Using the Kelly Criterion

QUOTING THE PARTS I LIKE OF THE ARTICLE

...In this article, we will explore the evolution of the modern portfolio from its humble beginnings in an unremarkable, and largely ignored, doctoral thesis, all the way to its current dominance, where it seems nearly everyone knows what you mean when you say, "you better diversify your portfolio."

The Wastelands
In the 1930s, before the advent of portfolio theory, people still had "portfolios." However, their perception of the portfolio was very different, as was the primary method of building one. In 1938, John Burr Williams wrote a book called "The Theory of Investment Value" that captured the thinking of the time: the dividend discount model. The goal of most investors was to find a good stock and buy it at the best price.

This article is so good that I'd feel like quoting everything, but it wouldn't make sense, because i provided the link. I'll just try to quote the best parts (even though it all seems good).

Fascinating:

During this period, information was still slow in coming and the prices on the ticker tape didn't tell the entire story. The loose ways of the market, although tightened via accounting regulations after The Great Depression, increased the perception of investing as a form of gambling for people too wealthy or haughty to show their faces at the track.

It's true. I am not like that, but in some periods of my career i was like these guys, too haughty to show my face at the track.

**** it. I am just quoting pretty much everything:

In this wilderness, professional managers like Benjamin Graham made huge progress by first getting accurate information and then by analyzing it correctly to make investment decisions. Successful money managers were the first to look at a company's fundamentals when making decisions, but their motivation was from the basic drive to find good companies on the cheap. No one focused on risk until a little-known, 25-year-old grad student changed the financial world.

Lucky him!

When Markowitz read John Burr Williams' book, he was struck by the fact that no consideration was given to the risk of a particular investment.

One of the reasons that "Portfolio Selection" didn't cause an immediate reaction is that only four of the 14 pages contained any text or discussion. The rest were dominated by graphs and numerical doodles. The article mathematically proved two old axioms: "nothing ventured, nothing gained" and "don't put all your eggs in one basket."

Yeah, that's why I didn't understand jack **** of it, and it got me started on my mathematical quest. And I still am not good enough to understand its formulas, also because the mother ****er doesn't make any efforts to be understood by me, because it's a book for other academics, actually meant to impress other academics.

Ok, I am done with the article. It was short, well written, but not what I expected. Maybe the author does not trade. It was appealing in its language, but... the flow of information stopped pretty quickly.

Ok, let's look for something else.

I was looking for the black-litterman model, and i came across Fischer Black, but then he had a link, on wikipedia, to the International Association of Financial Engineers. So I looked that up on youtube and found this interesting thing:

François-Serge Lhabitant: The professor who runs $5-$6 billion in hedge funds - YouTube

Academia meets trading. He is a professor. Let's see what he teaches:
Francois-Serge Lhabitant
LHABITANT François-Serge, PhD - Recherche EDHEC & Corps Professoral

Nothing here. Let's look at the other places he's teaching or has taught.

No luck.

Let's get back to reading Vince.

...

You know, i keep reading up on portfolio theory for futures, googling it, searching it on forums, and I just came up with yet another long paper on it:
http://www.casact.org/pubs/forum/99spforum/99spf137.pdf

But the problem is... I am too advanced to just apply rule-of-thumb portfolio methods, and yet I am too behind and ignorant to read any one of these papers (markowitz, and even vince)... this is just too much work. Maybe I'll be able to read vince, but I won't go any further, and instead I'd like to be able to compare authors.

These portfolio theory authors, beginning with markowitz, are not user-friendly, reader-friendly... they don't care about the retail traders. They're writing for mathematicians, physicists, academics... not for me.

This search is driving me crazy, because these assholes are anything but clear and simple. They purposely make it more complex than it needs to be.


E.P.Chan

One exception is Chan. He's not a vendor, nor an academic. A good mix of the two. Indeed, the ideal thing would have been E.P.Chan's chapter on this, chapter 6 of his Quantitative Trading book. His book is precisely the right level of conciseness I need. But I don't understand it either.

Let's go over it once again:
Amazon.com: Quantitative Trading: How to Build Your Own Algorithmic Trading Business (Wiley Trading) (9780470284889): Ernie Chan: Books

Ok. He mentions two authors: Edward Thorp and Kelly. The same Kelly mentioned by Vince. So I guess we're on the same wavelength.

His bibliography also suggests these readings:

Cover, Thomas. 1991. “Universal Portfolios.” Mathematical Finance 1(1):1–29.
Grinold, Richard, and Ronald Kahn. 1999. Active Portfolio Management. New York: McGraw-Hill.

I need to find them, because I trust E.P.Chan.

This is what I'll do. I'll need to read Vince and Chan again, of course, but also Kelly, Thorp, and these last two books he mentions. So as of now I have 5 books/chapters to read. These are presumably user-friendly, not like the other mother ****ers.

Nonetheless, this is going to take a ****load of time. In the meanwhile, I'll underbet.

[...]

Ok, I've gathered the e-books in folders named after the authors. They were all available on the web: