I recently read a book called Fooled by Randomness and found it interesting to see an example in the book. The point is that if you put an infinite number of monkeys in front of a typewriter, at least one monkey will be able to type the Iliad in its entirety. Of course, this is just a reprint of the complete collection of Shakespeare's Fooled by Randomness.
The author then asks a question: If this monkey came to you with its CV, would you bet your life savings that its next book would be an Odyssey?
A wise man would certainly not promise this monkey, because it can only be played by chance, and has nothing to do with the monkey's own ability. So the question arises, if the monkey becomes a trader, and Liu Yiliang becomes his wonderful trading record, would you be willing to put your money in the hands of this trader?
Of course, some people will be moved. Some people will argue that people are not like monkeys, they are intelligent. Even if this is true, then we must also admit that his trading record is good and may be due to randomness.
It is difficult to imagine that a company's profitability could fluctuate dramatically in one day, perhaps even independently of the individual company's own value. In other words, in the long run, the price of a company's stock should be determined by its own operating conditions and profitability. However, if we look at a stock chart, we can see that the price of a stock can fluctuate dramatically in one day. It is difficult to imagine that a company's profitability can fluctuate dramatically in one day, and even independently of the individual company's own value.
In the past, I have made a vector regression model to fit the GRP and CPI of Chongqing City using 75 parameters, which fits very well. However, when I tried to use the data to predict the next year, the problem arose, and several values all turned negative!
I have always had the idea that the more parameters are used to depict the real world, the greater the probability of deviation from reality. A simple force can produce acceleration, which is correct, but when we use more refined models, such as our specific examination of what forces are at work, it is very likely that some forces are ignored and the result is not the same as a whole. For the movement of Napoleon, we can say that because of the force, the direction of motion of the particles is A. If we really wanted to test which molecules are at work, the result could be that some particles are ignored, so that under the action of the examined particles, such as the direction of motion of the particles, they become B. Of course, the parameters used are too few and not suitable, as I said at the time, because I absolutely believed that one could explain the workings of the human brain and that it was impossible to solve the fundamental continuum between the quantum system and the financial system.
Later I found my ideas coinciding with a Canadian quantitative trader who had published a manual on quantitative trading algorithms. In the book, he argues that this is a type of data migration bias, and in his practice, he found that a good AI-based financial forecasting model requires little historical data and often does not even need the extremely complex nonlinear functions.
It is also for these reasons that I am not interested in the so-called stock god class. Buffett is a stock god, yet the vast majority of his fortune cannot be derived from stocks or trading in the traditional sense, but rather from investing. In long-term thinking, I gradually formed the view that trends are predictable, that for a company, its stock price trends in the long run still depend on its own value, yet in the short run randomness is at play.
One of the best possible solutions to the randomness of the market, as far as I am aware, is to stop the loss, which means to reduce the losses caused by randomness to an acceptable level, in other words, even if randomness causes the price of the stock to fall, the losses will not expand indefinitely. This is simple to say, but the subtleties of human nature are also unpredictable. Fooled by Randomness gives two examples of the result, a stock trader A, whose personal holdings grew from 1 million to $16 million in three years.
This reminds me of a game I played before, where the really great plan, even if it happens accidentally or fails, is part of the plan itself.
This is the first time I've seen this movie.