Saturday, March 11, 2006

In Speculation - Math Is Seldom The Answer

Using physics theory some solutions are best apprehended considering the universe as two dimensional with another five dimensions as illusionary.

Does that help you decide if IBM is a good short?

Quantitative analysts (quants) are math and science geniuses that are hired by wall street to discover market anomalies that yield to sharp financial finesse or even blunt arbitrage.

We are not likely to compete with these professors that have given over their lives to studying phenomena such as the intersection of Euclidean geometry with quantum theory.

Most of us would not want to be a quant.

If it is not in math we can profit, where in the investment landscape can we survive and thrive?

It is in understanding of the
concepts - and then speculating in niches that are ignored by wall street - that we can excel personally.

As an instance take a look at the most pervasive option pricing models. These models were created by quants for specific people - option specialists trading options on the floor for short term profit.

Even if we don't understand the model's math, we can see the concept of a different value based on a longer holding period with different profit goals. pricing on leaps (long term options) has several attributes that allow for novel plays - seek them out.

Get books that explain the markets, like Jim Rogers' book on commodities to the right. If you understand how the markets work, you can find a spot and method that fits your personality.

Trading by concept with personally psychologically comfortable methods may be the key to your speculation success.


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