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Finance

The Signal and the Noise: errata

December 13, 2012

Nate Silver's new book, The Signal and the Noise: Why So Many Predictions Fail -- but Some Don't, is, on the whole, an excellent overview of statistical thinking. I think most of my readers would enjoy it. However, it is plagued by some bizarre mistakes that left me unable to completely trust that every detail is correct. [...]

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Caveat emptor

July 7, 2012

Another day, another pleasant surprise from the NYT: Tara Siegal Bernard has written a nice article encouraging a degree of educated skepticism when dealing with financial advisors. It's critical to keep in mind that not everyone offering financial advice is bound by any form of fiduciary duty to his or her clients. They aren't even [...]

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Misreading misleading headlines: VIX edition

February 13, 2012

I was shocked to see the following bold headline this morning, as it describes something which did not actually happen: CBOE 'fear guage' drops 6% in Monday trading Let's be clear: the VIX is measured in percentage points. A 6% drop in the VIX is very significant, as it represents a 6 point drop in [...]

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Desperately seeking an informed financial community

February 4, 2012

A sweeping tip of the hat to Barry Ritholtz's guest blogger SilverOz, who was willing to call out the mad (tinfoil) hatters at Zero Hedge on their usual nonsense (emphasis mine): So Rick/Zero Hedge, unless you would like to argue that the population of the United States also grew by 1.5 million in one month (since [...]

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Does a department store credit card really hurt your credit score?

January 27, 2012

I came across an article on whether or not closing credit card accounts lowers your credit score, which included this bizarre observation: The addition of new credit card debt also increases your credit utilization, or debt-to-credit limit ratio, on revolving accounts such as credit cards. For FICO scores, this ratio is part of a factor [...]

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What a headline!

September 20, 2011

The title of this NYT article got my attention: Italy Rejects S.&.P. Downgrade. Why didn't the U.S. think of that?

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A failure of all offices

September 19, 2011

UBS releases further details about their rogue trader, but fail to describe how the fraud was possible.

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Too big to care

September 15, 2011

The revelation that yet another rogue trader has been pulling the levers at a major bank, this time costing UBS $2 billion, makes me wonder about all the rogue traders we're not hearing about -- the ones who aren't big, stupid or aggressive enough to get caught. It raises serious concerns about the level of risk [...]

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The "software company" bubble

August 21, 2011

It's amazing what you can see when you refuse to open your eyes -- or need to talk your book. Take, for example, Marc Andreessen's article in the WSJ titled "Why Software is Eating the World." I became skeptical when this line appeared in the introduction: And, perhaps most telling, you can't have a bubble [...]

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You didn't think this was over, did you?

August 17, 2011

The Justice Department has been looking into S&P for mortgage-related fraud: The investigation began before Standard & Poor’s cut the United States’ AAA credit rating this month, but it is likely to add fuel to the political firestorm that has surrounded that action. Lawmakers and some administration officials have since questioned the agency’s secretive process, [...]

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Puzzling the Dow

August 14, 2011

What is the probability that the sum of the digits of the Dow's change would add up to the 26 on three consecutive days?

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Sell low, buy high

August 13, 2011

The WSJ is running an article comparing today's second-by-second "iPad inverstors" to the day traders of the dot com bubble. The article's point, near as I can tell, is that volatility makes people worry more about the markets, and that people aren't comfortable without instant feedback. I have a suggestion for the WSJ: A decade [...]

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The Untouchables

August 9, 2011

Standard & Poor's is the Al Capone of modern financial markets. For many years, we went along with their protection racket: we paid the firm, and they made sure we knew which investments were safe. They got involved in politics, spending incredible sums to lobby the government for support, and eventually were mandated into perpetuity [...]

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A funny thing happened on the way to the downgrade

August 9, 2011

The most interesting thing about yesterday's market action was the behavior of the Treasury market: It rose. If the market collapse was really about investors reacting negatively to the United States' new, lower credit rating, why on earth would replace their stocks with a direct investment in that very same government? We can only know [...]

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S&P's tit for tat

August 6, 2011

Thanks to the time difference, I went to bed last night thinking the markets had stabilized, but woke up to learn that the United States -- the unassailable risk-free issuer -- had been downgraded by S&P. This is embarrassing -- on S&P's part. As we all recall, S&P was blamed squarely for contributing to the [...]

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Misreading misleading charts: Alaska edition

August 4, 2011

There's a headline making the rounds this morning that caught my eye because it seemed preposterous: "Apple Stock Helping the Alaska Permanent Fund More than Oil." It's everywhere, but the original instigator seems to be this USA Today article. It looks like nobody bothered to read (or understand) the Fund's actual returns. First of all, the Alaska [...]

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Demand Media, indeed

July 28, 2011

Jason Calacanis writes: Sad to see Demand Media getting crushed in the market. Demand Media is a content farm (in every negative sense of the word) which (by some accounts) was crushed by Google's most recent "Panda" update that was aimed at removing junk spam Demand Media from search results. So to put this tragedy [...]

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Value vs Valuation

July 18, 2011

I love this video from Derek Sivers, founder of CD Baby: Attend a startup conference and you'll find that people there seem to believe that the mark of a successful company is the amount of money it's raised, not the amount of money it makes. Naturally, by this metric, Color is the greatest company in [...]

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QOTD: hindsight edition

July 10, 2011

Kaiser Fung writes on uncertainty and thinking probabilistically about events that have already transpired. The full post is worth a read, but this line sticks out for me: The fact that you won the lottery does not change the fact that economically, it was silly to play the lottery in the first place. This fallacy pops [...]

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Words to live by

July 2, 2011

"Hope" is not an investment strategy.

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Talking heads

June 30, 2011

Too good to pass up: (via SMBC)

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The turkey statistician

November 10, 2010

C links to a Thanksgiving-appropriate essay by Nassim Taleb in which he presents a a story about a turkey statistician. For 100 days, the turkey is fed and cared for by humans. He arrives at the statistically-significant conclusion that humans genuinely care about his well-being. On the 101st day, the turkey is slaughtered. Most interesting [...]

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Chicken soup for the global economy

November 8, 2010

Just replace "technology" with "stress": (via Dilbert)

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Chaos and markets

October 20, 2010

This morning I came across a post by David Varadi on the (futile?) quest for simplicity. He writes: The most optimistic quantitative researcher knows deep down that an unexplained noise dominates the data that mysteriously eludes linear models such as regression. Markets are chaotic systems characterized by feedback. If they were neat and orderly (and [...]

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More on models

October 19, 2010

Justin Fox asks, "Why didn't people in finance pay attention to Benoit Mandelbrot?" -- and it's a great question. His conclusion: I think it’s mainly that he didn’t provide them a handy alternative to Black-Scholes. I can’t pretend to fully understand the practical implications of his fractal view of markets, but it does seem more [...]

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Risk & risk management

June 30, 2010

An overview of financial risk and the risk management process.

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No cash for clunkers

June 28, 2010

I'm a big fan of Emanuel Derman's work, his book and, most recently, his blog. In his latest post, Derman shows his lighter side with an entry in a contest for "plithy personal ads": "FANNIE MAE with troubled assets, bored with Freddie Mac, seeks well-regulated stimulus package from counterparty too big to fail. No cash [...]

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Driver’s ed for finance

June 28, 2010

James Surowiecki writes an excellent piece for the New Yorker on the state of financial illiteracy, concluding 1) we have it and 2) we have to get rid of it. Ultimately, he concludes that some form of basic financial education should be mandated before people can partake in purchasing financial products. The government’s new consumer-protection [...]

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Irrational exuberance, indeed

June 23, 2010

Here's an amusing chart showing the percent of stocks that sell-side analysts have rated "sells", on average: There's a million junk-chart bloggers who will tell you how much is wrong with this graph (myself included) - starting with the left hand scale, which should go up to 10% rather than 100%. But in a rare [...]

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What scapegoat?

June 16, 2010

Bad news if you're a government looking for a scapegoat; good news if you're a demonized "short" trader: A Brussels investigation into possible problems with speculative trading of credit default swaps on Greek sovereign debt in the wake of the country's crisis is understood to have found few serious flaws, triggering rumours that officials are [...]

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