Monday, 29 March 2010
Some of my thinking over the past week has been aimed at various trade-by-trade statistical measures that I need to keep a record of. Things like "how bad does a profitable trade get", "how good does a bad trade get", etc, which generate in turn their own statistical distributions and interesting conclusions. But it is such a pain to have to derive these manually - it takes about 6 hours to record a month's trading stats with all the associated measures - no doubt I could convert all the data into an excel format and work it out from that, but that would also take quite some time - but might be worth looking into, especially if I end up with some "family" type systems.
Many recent thoughts of my own time as a hedge fund manager (finished in 2006). On the one hand, reading books on statistical arbitrage and other quant strategies has indicated just how large the task was for us and how the odds really were stacked against us. But on the other hand, we did once have close to $20m under management and it seems strange to think we got to that point. But also, I am frustrated by thinking about some of the trading ideas we had but never found time to implement. Many of those did involve intra-day and very short-term holding periods and that seems to have been the right way to have gone - at least if one thinks about the success of Renaissance or SAC.
So I will have finished the manual extraction of trading performance data in the next few days and will then start the detailed statistical analysis of this data with a view to making a preliminary system selection in a few week's time. Odd to feel so excited about this again, after so long out of the markets.
Sunday, 28 March 2010
This morning is dominated by the much-looked-forward-to helicopter ride over Manhattan - 20 minutes for $450, definitely a once-in-a-lifetime event. Actually it wasn't a bad experience at all, though it was a little hazy. Emma got to sit in the front seat with the pilot while we were in the back. We flew out from the heliport on the lower east side and up the East River as far as Yankee Stadium and then down the Hudson river and back round via the Statue of Liberty. Only my second time in a helicopter (the first was in 1996 when I took a flight from JFK to the Chase Manhattan office on Park Avenue during the Hanson demerger - what a high-flying business executive I was)
Emma in the front seat
After the flight we walked round to the Financial District, taking in the Stock Exchange, Trinity Church, etc.
For the first time ever, we are flying Virgin to New York - a legacy of the uncertainty attached to BA these days. And it is all very good - so BA lose some future customers. But for some reason I wasn't aware that I had to check in online prior to the day of travel and so we can't get three seats together. Everyone else seems to think this was obvious, but not me.
I watched "Up in the Air" on the flight across - actually for the second time. Indeed it was probably better the second time as well. A little dozing, not much sleep, and a slightly stressful run through immigration as Linda and Emma think I have done the forms incorrectly and we'll be sent to the back of a long queue because of my stupidity.
The taxi journey to centraL Manhattan seems to take much longer than I remember with long queues on the route in through Queens. But we are at the hotel by 4:00pm local time and set off on a long walk which is supposed to help us stay awake till a more reasonable time to go to bed. We walk down through Times Square and across to Bryant Park, where we find a possible breakfast location - we are keen to avoid out hotel for cost reasons
Dinner is eventually at a place called "Maison" just down from the hotel. Our waitress is what might be described as "cooky" or possibly something worse. Rough plans have been made for the next few days. We manage to stay up till 8:30
So breakfast is at a place called Le Pain Quotidien, apparently a chain originating in Belgium. Lots of oatmeal, fruit, etc, which Emma is very pleased about. From there, Emma and Linda head up along Fifth Avenue to various stores - J Crew, Abercrombie and Fitch, etc. I walk down past Grand Central Station and find the Avis car rental place where I am bravely planning to hire a car tomorrow. Everything seems fine there - no need to book today, they will definitely have something suitable for us tomorrow.
On the way to meet Linda and Emma, I have found a Barnes and Noble store and bought a guide to Long Island. It is raining pretty hard by the time I find them at Abercrombie. Lunch at Au bon Pain and then to Tiffany's to check out a few ideas for a suitable 21st birthday present for Emma. Then while they have a rest at the hotel, I am off to Times Square to join the queues at the last minute ticket agency we spotted yesterday. This turns out to be a wait of well over an hour in the rain but I am able to get good tickets for tonight's performace of "Chicago"
The traditional Times Square Picture - a wet Monday in March
Food could prove something of an issue this week it seems. Emma has firm ideas of what she might want, but we have little idea where suitable places might be. Tonight she fancys Mexican and I was fortunate to find one near Times Square. It claims it is able to do a vegetarian fajitas, but what arrives is pretty odd - for some reason they substituted chicken with carrots - why not just do more peppers and onions? Still Emma is happy enough with the huge amount of nachos and guacamole that is available, so it is all ok.
Linda and Emma have actually seen "Chicago" before in Oxford, while I have seen a tiny bit of the film and actually have no idea what it is all about. But, as Linda rightly pointed out, there are plenty of scantilly clad young lady dancers involved and so I ought to be ok. I wasn't that keen on the girl playing the lead role - allegedly a former member of Destiny's Child. But I was rather taken with a couple of the dancers!
Overall, it seems this was a pretty good first day
Breakfast at the same place as yesterday - will this be a pattern for the week? Then down through Central Station - the first time Linda has seen this - and the collection of our car. I am unfamiliar it seems with American automatics and have to be shown by the parking attendent how to release the hand break! But we are soon on our way, down 2nd Avenue and through a tunnel onto the Long Island Expressway. The drive is actually quite ok though I feel really tired for some of it - and feel quite bloated all day. First stop is Southampton in the rain. We have lunch at a tiny cafe on Main Street - for me a really nice clam chowder - then down past the big (and amazingly expensive) houses to a spot of beach, where the waves are crashing in with some gusto.
Saturday, 20 March 2010
Most of the morning had been spent on PH413 preparation. I have worked through the reading list and located about 2 dozen of the articles available. I only have a faint outline of what work I am going to do between now and the June exam. But there is some overlap with the work on trading that I have been doing and this might make it easier to do.
Music today was mostly the McGarrigles' album Love Over and Over, with the deeply moving track, I eat dinner, and the beautiful St James Hospital
A final packing question - what to take to read? Kepler's Six Cornered Snowflake, Baverstock's Marketing your Book, and Goldstein's recently-published 36 Arguments for the Existence of God (a novel) have all appeared on my shortlist.
A last trip to the library for some time too. I had wondered if LSE had many books on stock market trading but it would appear not. But I did get Eisenstein's The printing press as an agent of change, as well as an example of one book from a series editied by Robin Myers and Michael Harris, in this case, A Millennium of the Book: Production, Design and Illustration in Manuscript and Print, 900-1900.
So Miklos signed off my dissertation topic proposal - supposedly LSE is going to be much stricter with people not sending these in at the right time. Then it was off out and home in time for some work before going back to Oxford for my penultimate biography seminar. Odd to think that all my course will have finished soon.
Tuesday, 16 March 2010
For the best couple of days I have been reading Pablo Triana's Lecturing Birds on Flying, about the impact of mathematical finance on markets, etc. This is woefully repetitive but does have some good stuff in it. In the back of my mind I also have to think about my upcoming exam in philosophy of economics and this requires that I have some good illustrative case studies. The Black-Scholes option model would be an excellent example I reckon, and there is plenty about this in Triana's book
Yesterday I was somewhat shocked to see on a MOIO website a recording from last week of Penetration in concert. They are apparently currently supporting Stiff Little Fingers on a short UK tour - this recording being from the Assembly rooms in Leamington Spa, a venue I know very well. Of the bands that came through in the period immediately after punk, Penetration were always my favourite. I saw them just once in concert in 1979 or possibly 1980. Pauline Murray was just amazing. Really tiny, but very sexy I thought. The live recording is pretty good and the sequence of Free Money, Silent Community and Don't Dictate brings back many happy memories. I will now be trying to buy a CD copy of Moving Targets - what a treat it would be to hear that again. My copy is on vinyl and we no longer have a record player - how times change
(I did once see Pauline Murray with another band in the early 1980s - not sure of the name, maybe The Invisible Girls. It wasn't the same, but still pretty good. At one time I used to correspond with Peter and Paul Perrett of the band, The Only Ones. They knew Pauline Murray really well apparently, but I was never able to persuade them to help me meet her)
The best "old" picture of Pauline Murray that I could find at short notice. Probably my al time favourite punk singer
The stupendously great Penetration debut album - Moving Targets.
And on a completely different matter, several of the papers have published photos of the "supermodel" Lily Cole dressed in a rather extraordinary business suit. No doubt that would cause rather a stir at an office. Mind you, I can think of one or two girls at the various places I've worked who would have looked very good in such an outfit. I am particularly taken by the hat!
What the best dressed lady business woman is wearing these days
Sunday, 14 March 2010
As always, the possible approaches that could be used is virtually unlimited and so the selection process is going to be critical. My main theme is that prediction is best practiced over very short time periods and so the early models are being applied to data based on 5, 10 and 15 minutes. So lots of trades, small point wins and losses, but a rapid build up of statistics.
Lots of serious research questions beginning to form - mainly the sort of statistical question that I developed after reading two books by John Sweeney years ago. In the end, I will build up a collection of programmes which I will apply simultaneously. Each will work ok on its own, but will blend together better than any on its own. They will require substantial attention each day, and I have lots to do to work out the detailed day-to-day working schedule. But early results remain very encouraging.
Saturday, 13 March 2010
But I did spend some time on one of the LSE computers in the library and was impressed by just how fast it was when I was logged onto one of the trading sites I have been following. My laptop at home is doing really badly at running this software and I have been thinking about getting a new one. At least the day at LSE revealed this.
But John's lecture was quite good (though cut short by University bureaucracy that he needed to attend to). Mainly on theories of collisions after Descartes, including a long discussion of the "moving boat" argument by Huygens - a great set of arguments
Tuesday, 9 March 2010
While trading, I am working on various articles from The Cambridge Companion to Renaissance Humanism. Much of this material is relevant for my biography project but will be hard to blend in seamlessly into a life story. I am pleased with the manner in which I am able to work and follow markets at the same time. This gives great hope for a possible future work model.
On a break late morning I watched a documentary called Punk Attitude that I downloaded the other day - a predominantly US look at punk rock. I was 13 the summer that punk first hit the UK (1976) and have continued to find all sorts of ways that it has influenced me since. I particularly enjoyed the interviews with Roberta Bayley who produced some of the most iconic images of that period. I remember when Blondie first toured the UK and played venues like Friars, Aylesbury. Or Pere Ubu promoting The Modern Dance l.p. Extraordinary times.
Blondie at CBGB's, 1978, by Roberta Bayley
One other area that I was reminded of were the many punk fanzines that I used to buy. The one I remember most was Zigzag (which later became a regular music magazine - much to my disgust). I remember their reviews of live shows as being hugely influential on me - after all, I went to university at L.S.E rather than Cambridge because I wanted to be able to see great music all the time! And one of the earliest crushes I had on a punk girl was one of the members of the Runaways who featured in a comic strip in Zigzag. Wonder if I still have those magazines - they would be in the garage here if I still do.
Monday, 8 March 2010
Two books on trading arrived in the post this week; Lindsey and Schachter's How I became a Quant, which is a bit disappointing, and Narang's Inside the Black Box, which is much better and is providing an excellent framework for developing the right questions that I need to be asking. I have also been reading some of the books from my existing library; Gary Smith's rather odd How I trade for a Living and one of my all time favourites, Bass's The Predictors. Years ago, I emailed Doyne Farmer (who is one of the main characters in The Predictors) to ask him about a couple of his academic papers and much to my surprise, he sent me hard copies of three of them - Market Force, Ecology and Evolution, Physicists attempt to scale the ivory towers of Finance and Evolution and Efficient Markets. The Predictors was such an exciting book to read when I was starting my hedge fund company. I look back with many fond memories of that time.
An abstract of a Doyne Farmer paper on financial markets
Another person I have been reminded of recently is Victor Neiderhoffer. I wrote to him in the spring of 1998 and I remember Linda being somewhat surprised to receive a phone call from him one afternoon as I was driving home from work! Something in my letter had caught his attention (probably comments about my father which rather gelled with his own comments in Education of a Speculator). The upshot of this was that he and his wife of the time, Susan, took me to dinner at the Four Seasons restaurant in New York - the one with the Picasso paintings on the wall. I don't remember much about the dinner except that he was walking very stiffly - perhaps a long-term legacy of his squash playing days - and that I felt totally out of my depth talking to him. He sent me a pack of papers related to the checkers player Tom Wiswell, and a signed copy of Philip Carret's The Art of Speculation, for which he had written the foreward. And a video of him lecturing on the subject of music and the markets. I gave him an Arvo Part cd when we met!
A week or two later he sent me a letter saying that all my ideas about markets were wrong - a very aggressive letter made all the more poignant by his fund explosion a month or so later! A few years back he did return to fund management but I understand that this fund also collapsed. Now he seems to be mainly active on a website called Daily Speculations. He has also remarried
I actually didn't come across Neiderhoffer again through market work, but rather through a book I bought a month or so ago called At Home with Books, where various people showed off their libraries, Neiderhoffer being one of them. His looked very nice.
And on a completely unrelated matter, one of the weekend newspapers has a small feature on the photographs of Yoshihiko Ueda of the Quinault Rain Forest in Washington state. Quite breathtakingly beautiful I thought - some examples below
Tuesday, 2 March 2010
Overnight, markets had barely moved but in the pre-market around 6:30 and before the main opening there was a pick up in buying and an upward movement of 10 points or so. A couple of hours of sideways movements which came very close to giving a reversal signal and then a steady rise that continues for much of the day up to 5480 from last night's close of 5405. No trades made as a result, a +75 pts day worth (at the current low position size), the princely sum of £375. Still that is "earnings" of £500 for two days "work", which would produce £60k per annum at constant leverage and well into six figures if leverage remained constant as the account grew. So not bad.
More importantly, perhaps, I have been able to get on with my usual study while following the markets. In fact, it was rather a nice way to spend the day - technically I am both studying and working! Everyone should be happy, though I have decided not to tell Linda that I have embarked on this programme at this stage. She has had two very busy day's work so far this week and would probably not be pleased to find out that she has earned less than I have this week so far, when I have just been sitting in the study reading and listening to music - that could be an issue later on though and could easily overwhelm the good news that I can apparently still earn money.
As a complete aside, the current issue of The Treasurer (one of my professional journals) has a long article on Charles van der Welle, a former colleague at Hanson. He recounts the demerger announcement at Hanson in early 1996 and claims he was offered the position of Treasurer in the Hanson rump. In my view, that is not correct - Jonathan Nicholls was in line for that all along. And in any case, Charles should have realised that Imperial Tobacco offered the best treasurer position going forward - which I got of course. But it was an important part of my development as an executive that I took control of the demerger during the period Charles was working out his notice at Hanson. He has now been at ITV for over 14 years - I can't imagine working at one place for so long. Maybe I should give Charles a call and go and see him one day when I'm up in London - that could be pretty strange!
Monday, 1 March 2010
This issue has remained un-resolved for some time. Our considered opinion is that it could be partially solved by me doing some further paid work - preferably in a high paid job in London for maybe a year. I am generally reluctant to go down this route as I feel the year would be largely wasted, but nontheless, I have been trying to get such a position for some time - but perhaps not as hard as some would be looking.
But another possibility has raised its head. Linda has seemed to suggest that at least some form of money coming in would be enough to "relieve the pressure" as she sees it. Moreover, she has seemed to suggest that some degree of risk-taking would be appropriate. I have, it would seem, lost my "entrepreneurial spirit" in my academic studies (though I probably work just as long hours as I ever did).
This raises an interesting proposition - I should go back to some of the short-term trading programmes that I developed when I was working on RA and trade these from home while I did my study. Logistically, this is not at all straightforward, but it is a possibility, and one that I am now rather excited about pursuing. So today, I signed up for an online charting package and have spent most of the day working through the manual for this, setting up some initial worksheets and working on some of my favourite systems. It was relatively easy to programme in some of the RA trading systems and at 1:30pm I made my first trade, buying close to £27,000 worth of UK equities, which, by the close of trading at 4:30pm had generating a profit of 20.3 pts or £101.50.
I now need to start generating detailed statistical records of the trading performance of this over the next few months. For instance, what is the average daily points result, what is the standard deviation of this, what is the worst sequence of losing trades, whate are the MFE and MAE of each trade (technical terms that are beyond this blog to explain at the moment) and so on? Once I have enough stats on this - possibly by the mid-summer - I can then up the trading accordingly. At my current trading size, I would need to average 20 pts a day to make the sort of financial contribution that I perhaps have in mind as the minimum acceptable that enables me to continue studying rather than going back to working in an office. This is a bit high. But once I am confident in the trading methodology, then I could up this trade size a bit - perhaps to two or three times the size of this first trade, and so the points needed would drop proportionately.
In the garage I still have several boxes of books from the RA days. These have been sorted through and I have selected a dozen or so favourites for further study. Strange to thing that I am enthusiastic about this idea. Once upon a time (late 2006), I had assumed that all this was behind me. Now it is right there in the centre of my thoughts again.
And could this project push me out of the tendency to depression that I have been suffering from as my academic life comes in for so much criticism?